---

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549


FORM 10-KSB

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) 
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Fiscal Year Ended December 31, 2007

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) 
OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-29804

SecureCare Technologies, Inc.

|                                                                                                                                                                                                      
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(Formerly
  eClickMD, Inc.)                                                                                                                                                                           
|                                                                                                                                                                                                      
|(Exact
  name of registrant as specified in its charter)                                                                                                                                              
|                                                                                                                                                                                                      
|NEVADA(State or other
  jurisdiction of incorporation or organization)                                                                                                                                
|                                                                                                                                                                                                      
|82-0255758                                                                                                                                                                                            
|                                                                                                                                                                                                      
|(I.R.S.
  Employer Identification Number)                                                                                                                                                             
|                                                                                                                                                                                                      
|1617
  W. 6th Street Suite C, Austin, Texas 78703                                                                                                                                                     
|                                                                                                                                                                                                      
|(Address
  of principal executive offices)                                                                                                                                                            
|                                                                                                                                                                                                      
|Registrants telephone
  number, including area code: (512) 447-3700 Securities registered pursuant to
  Section 12(b) of the Act: None, Securities registered pursuant to Section
  12(g) of the Act:
|                                                                                                                                                                                                      
|COMMON STOCK, $.001 PAR VALUE                                                                                                                                                                         
|                                                                                                                                                                                                      
|(Title
  of class)                                                                                                                                                                                    

Indicate by check mark
whether the Registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that Registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes x No o

Indicate by check mark if
disclosure of delinquent filers pursuant to Item 405 of Regulation S-B is not
contained herein, and will not be contained, to the best of Registrants
knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Report on Form 10-KSB or any amendment to this
Report on Form 10-KSB. o

The issuers revenues for
its most recent fiscal year ended December 31, 2007 were $134,065.

The aggregate market value
of the voting stock (which consists solely of shares of common stock) held by
non-affiliates of the Registrant as of February 29, 2008 (based upon the
closing price) was $1,035,338.

Issuers involved in
Bankruptcy Proceedings During the Past Five Years. Check whether the issuer has
filed all documents and reports required to be filed by Section 12, 13 or 15
(d) of the Exchange Act after the distribution of securities under a plan
confirmed by a court.

Yes x No o

The number of shares of the
issuers common stock, par value $.001 per share, outstanding as of February
29, 2008 was 1,744,958 of which 828,270 shares were held by non-affiliates.

Documents Incorporated by Reference. Yes.

Transitional Small Business
Issuer Format. Yes o No x

---



SecureCare Technologies, Inc.
Form 10-KSB
For the Fiscal Year Ended December 31, 2007
INDEX

|           |                                                                                                                   |   
|---------- | ----------------------------------------------------------------------------------------------------------------- | --
|PART 1     |                                                                                                                   |   
|           |                                                                                                                   |   
|Item 1.    | Business                                                                                                          | 2 
|           |                                                                                                                   |   
|Items 1A.  | Risk Factors                                                                                                      | 10
|           |                                                                                                                   |   
|Item 2.    | Properties                                                                                                        | 16
|           |                                                                                                                   |   
|Item 3.    | Legal Proceedings                                                                                                 | 16
|           |                                                                                                                   |   
|Item 4.    | Submission of Matters to a Vote of Security
Holders                                                               | 16
|           |                                                                                                                   |   
|PART 11    |                                                                                                                   |   
|           |                                                                                                                   |   
|Item 5.    | Market for Registrants Common Equity and
Related
  Stockholder Matters                                           | 17
|           |                                                                                                                   |   
|Item 6.    | Managements Discussion and Analysis of
Financial
  Condition and Results of Operations                           | 17
|           |                                                                                                                   |   
|Item 7.    | Financial Statements                                                                                              | 21
|           |                                                                                                                   |   
|Item 8.    | Changes in and Disagreements with Accountants on
  Accounting and Financial Disclosures                           | 21
|           |                                                                                                                   |   
|Item 8A.   | Controls and Procedures                                                                                           | 22
|           |                                                                                                                   |   
|Item 8B.   | Other Information                                                                                                 | 22
|           |                                                                                                                   |   
|Part 111   |                                                                                                                   |   
|           |                                                                                                                   |   
|Item 9.    | Directors, Executive Officers, Promoters and Control
  Persons: Compliance with Section 16(A) of the Exchange Act | 23
|           |                                                                                                                   |   
|Item 10.   | Executive Compensation                                                                                            | 25
|           |                                                                                                                   |   
|Item 11.   | Security Ownership of Certain Beneficial Owners and
  Management                                                  | 27
|           |                                                                                                                   |   
|Item 12.   | Certain Relationships and Related
Transactions                                                                    | 28
|           |                                                                                                                   |   
|Item 13.   | Principal Accountant Fees and
Services                                                                            | 29
|           |                                                                                                                   |   
|Part IV    |                                                                                                                   |   
|           |                                                                                                                   |   
|Item 14.   | Exhibits and Reports on Form 8-K                                                                                  | 30
|           |                                                                                                                   |   
|Signatures |                                                                                                                   | 31
|           |                                                                                                                   |   

---



PART 1

CAUTIONARY STATEMENT REGARDING FORWARD
LOOKING STATEMENTS

This report on
Form 10-KSB contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. SecureCare Technologies, Inc.
(SecureCare or the Company) bases these forward-looking statements on its
expectations and projections about future events, which the Company has derived
from the information currently available to it. In addition, from time to time,
SecureCare or its representatives may make forward-looking statements orally or
in writing. Furthermore, forward-looking statements may be included in
SecureCares filings with the Securities and Exchange Commission or press
releases or oral statements made by or with the approval of one of SecureCares
executive officers. For each of these forward-looking statements, SecureCare
claims the protection of the safe harbor for forward-looking statements
contained in the Private Securities Litigation Reform Act of 1995. These
forward-looking statements relate to future events or SecureCares future
performance, including but not limited to:

| |   |                                                   
| | - | --------------------------------------------------
| |  | Possible or
  assumed future results of operations
| |   |                                                   
| |  | Future
  revenue and earnings; and                
| |   |                                                   
| |  | Business and
  growth strategies.                 

Forward-looking
statements are those that are not historical in nature, particularly those that
use terminology such as may, could, will, should, likely, expects, anticipates,
contemplates, estimates, believes, plans, projected, predicts, potential or
continue or the negative of these or similar terms. The statements contained in
this Report that are not purely historical are forward-looking statements
within the meaning of Section 27A of the Securities Act of 1933, as amended,
and Section 21E of the Securities Exchange Act of 1934, as amended, including
statements regarding the Companys expectations, beliefs, intentions or
strategies regarding the future. Forward-looking statements are subject to
certain known and unknown risks and uncertainties that could cause actual
results to differ materially from those expressed in any forward-looking
statements. These risks and uncertainties include, but are not limited to, the
following important factors with respect to SecureCare:

| |   |                                                                                                                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | the
  uncertainty of general business and economic conditions, including the
  potential for a slowdown in business and expenditures on medical information
  technology and software;                                            
| |   |                                                                                                                                                                                                                                   
| |  | the impact
  of competition, both expected and unexpected;                                                                                                                                                                        
| |   |                                                                                                                                                                                                                                   
| |  | our need for
  additional funds, and the difficulties we may face in obtaining such funds;                                                                                                                                        
| |   |                                                                                                                                                                                                                                   
| |  | the
  Companys inability to realize the anticipated benefits of strategic and
  operational initiatives related to increased productivity, new product
  development, technological advances, and the achievement of sales growth
| |   |                                                                                                                                                                                                                                   
| |  | those
  described under Risk Factors included in Item 1A of this document.                                                                                                                                                        

Forward-looking
statements are only predictions as of the date they are made and are not
guarantees of performance. All forward-looking statements included in this
document are based on information available to SecureCare on the date of this
Report on Form 10-KSB. Readers are cautioned not to place undue reliance on
forward-looking statements. The forward-looking events discussed in this Report
on Form 10-KSB and any other statements made from time to time by SecureCare or
its representatives may not occur and actual events and results may differ
materially and are subject to risks, uncertainties and assumptions about
SecureCare including without limitation those discussed elsewhere in this Form
10-KSB under the heading Risk Factors as well as those discussed elsewhere in
this Form 10-KSB, and the risks discussed in our Securities and Exchange
Commission filings. Except for their on-going obligation to disclose material
information as required by federal securities laws, SecureCare is not obligated
to publicly update or revise any forward-looking statement, whether as a result
of new information, future events or otherwise. In light of these risks,
uncertainties and assumptions, the forward-looking events discussed in this
Report on Form 10-KSB and in other statements made from time-to-time by
SecureCare or its representatives might not occur.

1

---



ITEM 1. BUSINESS

OVERVIEW

SecureCares
management believes that the Company is a leading provider of Internet-based
document exchange and e-signature solutions for the healthcare industry.

The Companys
proprietary technology offers workflow solutions that enable documents to be
sent, retrieved, signed and remotely viewed anywhere in the world, between
providers of healthcare, while protecting patient privacy as required by law.

The Companys
Internet-based Sfax with Digital Signature is the only secure EFR (electronic
fax record) that is 100 percent dedicated to the healthcare industry. The
product is a HIPAA-ready (Health Insurance Portability and Accountability Act)
work flow solution that saves end-users up to 95 percent of the time and up to
80 percent of the cost of manual faxing. It provides a complete log and audit
trail for all fax documents and completely eliminates the manual paper
processing of fax documents. Sfax is distributed to end-users through the
Companys network of health care software vendors and value-added resellers.

The Companys
Internet-based SecureCare.net portal is an electronic document exchange and
e-signature workflow solution that was built with Microsofts dotNet
state-of-the art development tools. The SecureCare.net portal is tailored to
the needs of physicians, clinics and home healthcare, hospice and durable
medical equipment providers. This end-to-end solution offers a money-saving
approach to accessing information and managing time-consuming forms and
authorizations. It eliminates paper while enhancing the physicians ability to
capture fees for otherwise unbilled time and services.

The Company
markets its services to customers throughout the United States; currently
operating from its Austin, Texas-based corporate headquarters.

The Company
intends to continue to utilize the Internet to provide browser-initiated
healthcare document exchange and e-signature solutions that facilitate the
confidential, on-line exchange of healthcare information for many participants
in the healthcare industry. Based on the technology and products in place,
other applications can and will be developed that will enhance the Companys
position in the physicians office and in the offices of other providers of
healthcare. These services using Internet technology in the healthcare industry
are subject to risks, including but not limited to those associated with
competition from existing companies offering similar services, rapid
technological change, development risks, management of growth and a minimal
previous record of operations or earnings.

General

SecureCare
Technologies, Inc., (the Company or SecureCare) formerly eClickMD, Inc., was
incorporated in Idaho in 1961. During 1998, the Company changed its domicile to
the State of Nevada and is now a Nevada Corporation.

The September 20, 1999 Reorganization

On September
20, 1999, Center Star Gold Mines entered into an Agreement and Plan of
Reorganization (the Reorganization Agreement) with Link.com, Inc. Pursuant to
the Reorganization Agreement, the shareholders of privately-held Link.com
agreed to exchange 100% of the issued and outstanding shares of common stock or
25,000 shares, in exchange for 10,388,898 shares of the Companys common stock
with a par value of $0.001. For accounting purposes the acquisition of Link.com
by the Company was treated as a recapitalization of Link.com with Link.com as
the acquirer (a reverse acquisition). Accordingly, the historical financial
statements are those of Link.com and its predecessors. The Board of Directors
approved a change of the Companys name to Link.com, Inc. in September, 1999.
On May 26, 2000, the Companys name was changed to eClickMD, Inc.

Chapter 11 Reorganization - May 13, 2003

On May 13,
2003 (the Commencement Date) the Company (the Debtor) filed a voluntary
petition under Chapter 11 of Title 11 of the United States Bankruptcy Code (the
Bankruptcy Code) in the United States Bankruptcy Court for the Western District
of Texas (the Bankruptcy Court), Case No. 03-12387. During the course of its
Chapter 11 proceeding, the Company operated its business and managed its assets
as a debtor-in-possession pursuant to sections 1107(a) and 1108 of the
Bankruptcy Code.

On August 6,
2003, the Company filed a proposed disclosure statement and joint plan of
reorganization, dated August 5, 2003, (the Plan) with the bankruptcy court. On
October 23, 2003, after notice and a hearing, the bankruptcy court signed the
disclosure statement order, approving the Companys disclosure statement. On
October 24, 2003, the Debtors commenced the solicitation of holders of claims
entitled to vote to accept or reject the Plan. On December 2, 2003, after
notice and a hearing, the bankruptcy court entered its findings of fact,
conclusions of law and order confirming the Debtors joint plan of
reorganization dated as of August 5, 2003 (the Confirmation Order). The Plan
became final and non-appealable on December 13, 2003. The effective date of the
Plan was December 15, 2003.

A copy of the
Plan (as amended by the bankruptcy courts confirmation order) is incorporated
by reference. Capitalized terms used but not defined herein shall have the
meaning assigned to them in the Plan.

The bankruptcy
courts confirmation order is also incorporated herein by reference.

2

---



The following
is a summary of the material features of the Plan and is qualified in its
entirety by reference to the Plan itself.

Among other
things, the Plan generally provided that all existing equity interests and
rights in the Debtor would be cancelled. The Debtors sole secured creditor
received ninety seven and one-half percent (97.50%) of the new common shares of
the reorganized Debtor. Unsecured creditors received two and one-half percent
(2.50%) of the new common shares of the reorganized Debtor, a cash payment
equal to two and one-half Percent (2.50%) of the amount of their allowed claim,
and an assignment of the Debtors rights under a pre-petition judgment in the
amount of approximately $1 million, entered in favor of the Debtor. Equity
interest holders in the Debtor each received 150 shares of new common stock,
regardless of the size of their pre-petition equity interests. In addition, in
connection with the Plan, the Company recorded $2,703,203 as a gain on debt
settlement and $168,667 as a gain on cancellation of an executory contract
during the year ended December 31, 2003.

On April 22,
2004 the Company submitted a motion to modify plan after confirmation (the
Motion) to the bankruptcy court. A copy of the Motion is included as Exhibit
3.7. The Motion consisted of the following changes to the original confirmed
Plan:

| |     |                                                                                                                                                      
| | --- | -----------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.) | To change
  the Company name to SecureCare Technologies, Inc. versus Secure Care, Inc. as
  stated in the original plan;                             
| |     |                                                                                                                                                      
| | 2.) | To correct
  the par value of the new common stock to $0.001 from $0.01 as stated in the
  original plan;                                            
| |     |                                                                                                                                                      
| | 3.) | To authorize
  15,000,000 shares of new common stock (reflecting a 1.5 for 1 forward stock
  split) versus 10,000,000 as stated in the original Plan;
| |     |                                                                                                                                                      
| | 4.) | To add
  certain language to ensure that the new common stock is freely tradable and
  non-restricted in any way.                                    

On May 18,
2004, the order granting motion to modify plan after confirmation was approved
by the bankruptcy court..

On October 19,
2004, the bankruptcy court judge signed the Companys order of final decree
which effectively closed the case.

Events Subsequent to the May 13, 2003 Reorganization

On January 19,
2004, the Board of Directors of eClickMD, Inc. approved a 1.5 for 1 forward
common stock Split (the Stock Split). On January 19, 2004, the shareholder
holding shares representing more than a majority of the shares of common stock
entitled to vote consented in writing to the Stock Split. The Stock Split
increased the number of shares of common stock issued and outstanding, as
approved in The Plan, from 10,000,000 to 15,000,000.

On January 19,
2004, the Board of Directors of eClickMD, Inc. determined to change the name
of the Company to SecureCare Technologies, Inc. The purpose of the name change
was to more accurately reflect the Companys present business and its
activities as well as to facilitate the future development of its business.
Approval of the name change required the affirmative consent of at least a
majority of the outstanding shares of the common stock of the Company. The
shareholder entitled to vote more than a majority of all the shares of common
stock entitled to vote consented to the name change on January 19, 2004.

The Company
filed an Amendment to its Corporate Charter with the State of Nevada on
February 24, 2004 affecting the Stock Split and the name change of the Company
to SecureCare Technologies, Inc.

In its efforts
to position the Company to raise the additional capital required to execute its
business plan, during 2006, the Company affected a significant financial
restructuring.

The board of
directors ratified a letter agreement (the Letter Agreement) on June 16, 2006
with a related party, Gryphon Opportunities Fund I, LLC (GOF) (its majority
shareholder on that date) in which GOF agreed to convert all of its outstanding
notes payable and accrued interest to common stock of the Company and GOF agreed
to release its lien on the Companys assets. Both of these actions were
conditioned upon the Company raising an aggregate of $570,000 in equity
financing.

On June 16,
2006, the Company had approximately 30 million shares of common stock
authorized remaining to be issued. To complete the equity financing and the
conversion of the GOF outstanding notes payable and accrued interest to common
stock, both at a price of approximately $.01 per common share, the
Company would have needed approximately 140 million authorized common shares.

As a result,
the Company authorized the creation of a new Mandatorially Convertible Series C
Preferred Stock (the Series C Stock) and commenced its equity financing at an
offering price of $2.72 per share of Series C Stock (approximately $.01 per
common share equivalent). Each share of Series C Stock represented 200 common
share equivalents. The Series C Stock had no conversion rights unless and until
the Company had sufficient authorized shares of common stock available to permit
the conversion of all of the shares of the Series C Stock at a rate of 200
common shares for each share of Series C Stock. The Series C Stock had no
liquidation preference, dividend rights or any other rights that were not
included in the rights of the current common stock holders.

The Company
achieved $570,000 in its equity financing on September 15, 2006 (the
Commitment Date), triggering the conversion of all of GOFs outstanding notes
payable and accrued interest, through the commitment date, of $600,967 and the
release of the GOF lien on the Companys assets.

3

---



Accordingly,
on November 13, 2006, upon filing its Certificate of Designation for the Series
C Stock with the State of Nevada, the Company immediately issued a total of
515,587 shares of Series C Stock including 251,903 shares issued in the equity
financing ($576,518 in total was raised by October 2, 2006) and 264,494 shares
issued to affect the conversion of GOFs notes and accrued interest.

To further its
financial restructuring efforts, on October 19, 2006 the Company made a
conversion offer to the remaining note holders to convert the balance of
$1,283,500 in notes payable and the related accrued interest of $262,917 to
Series C Stock. By December 31, 2006, the Company had received signed consents
from note holders accepting the conversion offer representing $1,020,000 in
notes payable and $208,328 in accrued interest. To affect these additional
conversions the Company issued an additional 540,605 shares of Series C Stock.

After securing
shareholder approval of a one for two hundred reverse common stock split, on
April 24, 2007, the Company amended its Articles of Incorporation with the
State of Nevada to reflect the reverse common stock split. Immediately
thereafter, the Companys 20,304,000 shares of common stock were changed into
approximately 101,520 shares of common stock and each of the Companys
1,058,835 issued and outstanding shares of Series C Stock were automatically
converted to 200 shares of the Companys common stock for an aggregate of
211,767,000 shares of common stock which were automatically converted into
approximately 1,058,835 shares of common stock. The total number of common
shares issued and outstanding immediately following the reverse stock split was
approximately 1,160,355. All share and per share amounts have been restated for
all periods presented to reflect the reverse stock split.

In June, 2007,
in accordance with the terms and conditions of the Companys original
conversion offer, dated October 19, 2006, the Company received signed consents
from additional note holders representing $244,018 in notes payable and accrued
interest. To affect these additional conversions, the Company issued 107,396
shares of common stock.

The Companys
continued existence depends upon the success of managements efforts to raise
additional capital necessary to meet the Companys obligations as they come due
and to obtain sufficient capital to execute its business plan. The Company
intends to obtain capital primarily through issuances of debt or equity. There
can be no degree of assurance that the Company will be successful in completing
additional financing transactions.

Our Solutions

To solve
inefficient and costly manual paper handling process in the healthcare
industry, SecureCare Technologies has developed proprietary Internet based
applications that provide workflow solutions enabling documents to be sent,
signed and remotely viewed anywhere in the world, between providers of health
care, while protecting patient privacy as required by law.

The Companys
Internet-based Sfax with Digital Signature is the only secure EFR (electronic
fax record) that is 100 percent dedicated to the healthcare industry. The
product is a HIPAA-ready (Health Insurance Portability and Accountability Act)
workflow solution that saves end-users up to 95 percent of the time and up to
80 percent of the cost of manual faxing. It provides a complete log and audit
trail for all fax documents and completely eliminates the manual paper
processing of fax documents. Sfax is distributed to end-users through the
Companys network of health care software vendors and value-added resellers.

The Companys
Internet-based SecureCare.net portal is an electronic document exchange and
e-signature workflow solution. The SecureCare.net portal is tailored to the
needs of physicians, clinics and home healthcare, hospice and durable medical
equipment providers. This end-to-end solution offers a money-saving approach to
accessing information and managing time-consuming forms and authorizations. It
eliminates paper while enhancing the physicians ability to capture fees for
otherwise unbilled time and services. SecureCare.net enables any health record,
form or prescription to move electronically, securely and effortlessly from the
point of generation  whether pharmacy or home health agency, to its
destination, such as a physicians private office.

The Company
markets its services to customers throughout the United States, currently
operating from its Austin, Texas-based corporate headquarters. The Companys
combined solutions allow providers of health care to send and receive health
care information in two different ways:

| |   |                                                                                                                                   
| | - | ----------------------------------------------------------------------------------------------------------------------------------
| |  | Sfax -
  electronic fax management system with digital signature and annotation
  features, including document tracking and status
| |   |                                                                                                                                   
| |  | SecureCare.net
  - electronic form format with e-Signature                                                                        

The Sfax and
SecureCare.net applications are written in Microsoft.Net programming language
and are easily integrated into almost any enterprise software application. These
solutions allow providers of healthcare to provide their information
electronically to the physician, at a significant cost and timesavings, while
complying with the stringent security and privacy regulations under HIPAA.
Physician practices will benefit as well. The physicians office can manage all
faxes and electronic documents in a single portal environment and route them to
the appropriate person within the practice for review and electronic signature,
and eventually route it for return to the sender. With integration into the
patient management system or the electronic medical record application (EMR)
the documents can be mapped to the appropriate patient file. We believe these
solutions are a major step forward in reducing the paper handling within a
healthcare providers office and a physician practice.

4

---



The Companys
initial focus is on five segments of the healthcare delivery model.

| |   |                                             
| | - | --------------------------------------------
| |  | National and
  Independent pharmacies       
| |   |                                             
| |  | Home Health
  Agencies and Hospice providers
| |   |                                             
| |  | Durable
  Medical Equipment providers       
| |   |                                             
| |  | Long Term
  Care providers                  
| |   |                                             
| |  | Physician
  practices                       

Within these
industry segments SecureCares addressable market is the document exchange,
e-signature and management of paperwork between the providers in each segment
listed above and their referring physicians.

Sfax  a
bi-directional, Internet-based electronic fax management system with digital
signature and annotation features, enables healthcare providers to send,
receive, sign and manage faxes from any application on any computer with an
Internet connection. This process includes functionality for tracking of
documents and it integrates into healthcare enterprise software vendors
applications. Sfax has the following features and functionality:

| |   |                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | It can be sold
  as a stand-alone product or it can be designed to be integrated into software
  vendor applications, or combined with SecureCare.net                                                                                                                                                                                                       
| |   |                                                                                                                                                                                                                                                                                                                                                             
| |  | The digital
  signature feature provides every user with a true digital certificate,
  allowing a provider to sign each fax electronically with a few clicks of a
  mouse, from a secure, HIPAA-ready platform, saving healthcare providers
  significant amounts of time that would be spent scanning and printing faxes
  in order to physically sign them
| |   |                                                                                                                                                                                                                                                                                                                                                             
| |  | It is an
  easily integrated electronic fax management system for almost all software
  applications - allowing users to type in or select a fax number from a
  directory and send the forms to a physician outside of the users electronic
  application                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                             
| |  | The system
  operates on a HIPAA-ready platform, providing a complete log and audit trail
  for all documents, ensuring the secure transfer of sensitive patient health
  information, a feature virtually non-existent with manual faxing                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                                                                             
| |  | It allows
  end-users to immediately increase their productivity, reduce costs, and
  efficiently communicate all healthcare information to their physician base or
  other healthcare facilities                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                             
| |  | It can map
  electronically faxed documents to patient records                                                                                                                                                                                                                                                                                              

SecureCare.net
 A fully integrated information portal, SecureCare.net, processes electronic
document exchange and e-Signature along with electronic faxing, Sfax.This fully
integrated portal is designed to completely eliminate the need for all
paper-based forms or documents. SecureCare.net has the following features and
functionality:

| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | It requires
  no download; this allows for quick access to the application and easy
  portability into newer designed web portal systems most common in physician
  offices today                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | It is
  accessed by typing a web address into any browser, which connects to the
  SecureCare servers and displays the appropriate login screen                                                                                                                                                                                                                                                                                                                                                                 
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Its
  documents are saved, displayed and printed in PDF (Portable Document Format)
  format. PDF is a highly recognized document type and is being utilized in
  most healthcare document image systems                                                                                                                                                                                                                                                                                                         
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Its
  integrated fax services (Sfax) allow users to type in a fax number and send
  the forms electronically to a physician who is not on the SecureCare.net
  portal                                                                                                                                                                                                                                                                                                                                           
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Its
  documents can be exported into an image format to send to other EMR systems                                                                                                                                                                                                                                                                                                                                                                                                                               
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | The
  SecureCare system tracks, audits and provides a history related to the status
  of the documents and the complete history of the document as
  it moves through the SecureCare system; this audit and history
  trail can be used for documentation in case of audits                                                                                                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | Management
  reports give SecureCare.net users information to track the status of a
  patients document, including where the document is located and whether the
  physician or nurse has signed the document; turnaround time is monitored for
  the healthcare provider to better understand which physicians are prompt in
  returning documents; patient activity is reported to show a complete history
  of documents for each patient; all reports are saved, printed and displayed
  in the PDF format.

The Technology

SecureCare.nets
database is distributed, allowing for faster and broader scalability. The
multiple server and storage area network (SAN) configuration provides for
robust fail-over and scalability. The SecureCare.net application was built
according to software standards currently in place, and in accordance with
healthcare regulations specific to using the Internet. The SecureCare.net
platform uses:

| |   |                                               
| | - | ----------------------------------------------
| |  | XML, SOAP,
  HTTP, HL7, HIPAA transaction sets
|
| |  | ANSI X12N                                     
|
| |  | Microsoft
  development solutions             

All database information is
stored in Microsoft SQL Server 2000 using encrypted XML data. CryptoAPI is the
encryption tool. Several web servers and database servers are co-located in a
third party facility that meets Internet requirements and federal regulations
for storing healthcare data. The application uses open standards allowing for
integration of other software as well as exchange of data with both new and
older systems alike.

5

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Electronic fax
servers, Sfax, have been added and integrated into the SecureCare.net
application that will allow us to create a virtual fax server. A healthcare providers patient
management system is easily able to interface with Sfax by sending our application
data in an XML file.

The Internet
has the full potential to design and deploy universal standards such as those
that govern email and electronic data transactions. Many major vendors -
especially Microsoft, IBM and Sun - have developed standards such as XML
(Extensible Markup Language) and SOAP (Simple Object Access Protocol) that have
been adopted by the World Wide Web Consortium (W3C) which is responsible for
defining Internet-based standards. Committed to the efficiencies of universal
standards, both the SecureCare.net and Sfax platforms are built around
Microsofts .NET (Dot Net) framework within the standards and regulations of
HIPAA and HL-7 (Health Level Seven messaging standards). The SecureCare
platform provides multiple levels of data encryption and security meeting the
strictest regulatory guidelines of the Centers for Medicare & Medicaid Services and the Food and Drug
Administration.

HIPAA and Federal IT Initiatives

Recent and
evolving federal regulations, several healthcare reform proposals, and new
government healthcare IT initiatives, are drivers of product development and
should accelerate industry adoption of SecureCares services. HIPAA is an
expansive regulatory scheme, which, among other objectives, is intended to
enhance the privacy and security of a patients protected health information
(PHI). We believe the significant federally mandated security and privacy
requirements have created a high barrier to entry for new and existing IT
solutions. SecureCares technical infrastructure was designed with HIPAA
regulatory compliance in mind.

Sales and Marketing

Management
believes the most effective way to penetrate our targeted markets is to sell
our services through established channel partners who have signed reseller
agreements with SecureCare. Our channel partners are the health care
information technology (HIT) companies and software vendors with enterprise and
billing software systems that are used to run our targeted end users businesses
(pharmacies, home health agencies, DME providers, Long Term Care facilities and
Physician practices). We intend to sell our services in an outsourced ASP
(application service provider) model that is integrated into the channel
partners software. The channel partner will sell the service in an integrated
module or as an add-on service to their software platform. There are
significant advantages to this strategy for everyone in the supply chain
including SecureCare, its channel partners and their end-user customer base.
SecureCares marketing efforts will be focused on selling to and supporting its
channel partner strategy.

Competition

The markets in
which we compete are highly competitive and rapidly changing. Although we
believe there is no single company that directly competes with our Sfax and
SecureCare.net solutions, we are aware of efforts by other companies to develop
products or services to either compete directly with our solutions or that
could be used as an alternative to our solutions. These companies offer fax
products, web-based processing of medical forms and signature solutions, that
could compete with our solutions. Our Sfax solution will compete primarily
against traditional fax machine manufacturers, which are generally large and
well-established companies, providers of fax servers and related software. In
addition, Companies with which we do not presently directly compete may become
competitors in the future through their product development in the area of
secure online services and such companies may have greater financial,
technological and marketing resources than we do.

The History of Our Current Products Offerings

In October of
2007 the company officially launched Sfax, a secure, Internet-based fax
management system designed specifically for health care providers. Sfax is a
bi-directional electronic faxing system enabling health care providers to send,
receive and manage faxes from any application on any computer with an Internet
connection. In February 2008, the Company released its digital signature and
annotation features for Sfax. In March 2008, the Company launched its Sfax Web
Services, providing SecureCares channel partners with a simple, rapid and
cost-effective method of integrating Sfax into any application architecture.

On February 1,
2005, the Company announced the release of its new application, SecureCare.net.
This solution transforms the costly, labor- and paper-intensive workflows
between physicians and home health services providers into a highly efficient
and cost effective electronic document exchange process. SecureCare.net is easy
to learn and simple to use, with current users learning the solution in 10
minutes or less. It requires only a browser (such as Internet Explorer) and
access to the Internet. Users can manage their documents from anywhere the
Internet is available.

State-of-the
art software development tools from the Microsoft dotNet development solutions
were used to speed the development and pave the road to an efficient
deployment. Additionally, early in development, Microsoft design testing of the
application was completed to allow for a full, world-class evaluation of the
application prior to release. A full review of the design and code was
completed in a simulated production environment with customized test scripts,
resulting in optimized performance and architecture.

SecureCare.net
offers extensive security, scalability and reliability. The new application is
fully redundant and scalable with a three-tier architecture that enables the
Company to add components as customer demand increases. The new multiple server
and SAN configuration, co-located in a third-party facility, provides for
robust fail-over. Data in the .net database is distributed among tables, making
information-finding faster, particularly for import functions.

6

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In July 2003,
the Company began transitioning its peer-to-peer software solution to a highly
scale-able platform for mid to large-sized enterprises. This new platform
allowed the Company to leverage its home healthcare and physician network by
adding connections to medical equipment companies, pharmacies, nursing homes,
hospice, hospitals, research communities, lab companies and insurance payors.

In early
November 2001, we began development of our third generation software. In this
generation of the product the SecureCare platform included dynamic forms
presentation and new user features that were robust and user friendly. The
SecureCare document viewer and forms presentation engine was designed to
accommodate larger enterprises in todays healthcare sectors. This new, third
generation technology, took advantage of the Windows(R) look and feel that is
most common in todays healthcare environment, and utilized the Internet as the
back-end communication pipeline to the SecureCare web services platform located
in the data center. The SecureCare database served up robust dynamic forms
through a small Windows client interface that was updated every time the user
began utilizing the application. User authentication and login was verified by
standard PKI (Public Key) with digital certificates. If the users name and
password did not match the digital certificates criteria then the users access
was disallowed. The digital certificate was stored in a certificate vault and
was only used during the current user session.  This concept is truly innovative
and allows for ease of use and portability for the user. The certificate vault
can accommodate other digital certificates that are issued by other certificate
authorities, (Verisign (TM), Digital Trust(TM), Baltimore Security(TM), and
many others). The vault concept allowed SecureCare to manage the certificates
for the user. The third generation software was based on data manipulation and
presentation to the dynamic forms. This concept allowed the Company to
interface with already available data from other healthcare software
applications. The Company was able to interface with these large software
vendors that have market penetration already established and allowed these
vendors to become HIPAA -ready at the same time. If the direct interface
solution was not feasible or could not be physically implemented, the Company
developed a solution to accommodate this problem. This solution included a
printer driver that could be selected in all Windows applications that converts
any document into a XML image that the SecureCare platform could interpret and
present to the user in an image of the form. Signature/date templates could be
created on this form image and then sent on to the physicians and nurses for
signature.

The Company
has contracted with Sungard Availability Services (Sungard) to house and
maintain the Companys server-farm which hosts our ASP application. Sungards
MAX architecture begins with their direct connectivity to multiple Tier 1
backbones. Inside, Sungard has built a fully redundant, self-healing network,
which consistently routes our customer traffic over the highest performance
backbone. Sungard engineers constantly monitor and upgrade this architecture to
stay ahead of the bandwidth growth. If a backbone goes down, a local fiber gets
cut or a hardware component fails, our customers can still access the
application through a sophisticated fail over system. Sungard will protect the
network perimeter with a security product called Check Point FireWall-1TM,
state-of-the art inspection Internet firewall technology. Residing at the
lowest software layer, FireWall-1TM inspects every packet that crosses our link
to the Internet. A comprehensive inspection policy will significantly reduce
the chances of unauthorized access to our data and applications. FireWall-1TM
does not affect system performance and is transparent to authorized users and
applications.

Currently, the
Companys SecureCare.net product is licensed to approximately 1,400 physicians,
of which approximately 500 were active in 2007 and 28 home health care provider
locations located in Texas, Louisiana, North Carolina, Florida, Minnesota,
Wisconsin, Virginia, Oklahoma, Missouri and Alabama. Home healthcare agencies
are charged a monthly fee per provider location utilizing the software. In
addition there are one-time training and set-up fees and integration and
customization charges as contracted. Currently, physicians are not charged for
utilizing the software. Officially launched in October of 2007, the Companys
revenue from its Sfax product was immaterial as a percentage of total revenue
for the year ended December 31, 2007. Management believes that upon execution
of its business plan, revenue from its Sfax product will represent a material
percentage of total revenue beginning in 2008.

The Company
intends to continue to utilize the Internet to provide browser-initiated
healthcare document exchange and e-signature solutions that facilitate the confidential,
on-line exchange of healthcare information for many participants in the
healthcare industry. Based on the technology and products in place, other
applications can and will be developed that will enhance the Companys position
in the physicians office and in the offices of other providers of health care.

Product Evolution

The Companys
first product, DocLink, was released in January 1997. This product furnished
health care providers with a means to send doctors orders (and other vital
patient information) to a physicians office, where the orders would then be
reviewed and authorized by the physician on his or her desktop computer.
DocLink allowed a home care provider to scan a medical order and send it to a
physician. At the doctors office, DocLink alerted the physician with a youve
got mail type icon, where the physician could read the order on the screen and
affix his or her electronic signature by invoking a password. DocLink
automatically delivered the signed order back to the home care provider and
automatically printed the order to be stored in the paper chart. While the
physician was reviewing orders, DocLink could provide him or her with a timing
routine, which also fed a database that furnished per-patient oversight billing
reports.

DocLink was a
Microsoft Windows-based application that operated on the currently available
versions of Windows, and it provided an electronic link between doctors and
home health care agencies to expedite the processing of paperwork. The
electronic link consisted of original documents that must be electronically
sent to the physician, electronically signed by the physician, and returned to
the provider. A health care agency simply clicked on a graphical button on a
Windows screen to scan a document into the software, and clicked on another
graphical button to send the orders/documents to the physician for review. The
physician logged into the system using his/her encrypted password and began
reading and signing the orders with electronic signature verification on the
screen. Once completed, DocLink automatically sent this information back to the
health care agency. The Companys services reduced administrative paperwork,
resulting in savings for our clients and significantly expedited the
reimbursement process, which directly resulted in a lower average number of
outstanding accounts receivable days for our clients. Research had shown that
most physicians and home health care agencies neglected the signature
attainment portion of the paper work process due to the overwhelming
difficulties and liabilities associated with the typical paper based process.
Utilizing SecureCares software simplified and expedited a previously difficult
and tedious process into a significant income-producing component of a physicians
business practice through implementation of the Care Plan Oversight (CPO)
billings.

7

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Medicare
increased CPO billing rates between 17% and 22% for the year 2000 to get more
physicians to bill for and review documents coming from home health agencies.
Many physicians overlooked the CPO billings, primarily due to the increased
paperwork to manually track the billing. In a research report prepared for the
Massachusetts Medical Society regarding care plan oversight charges from
Medicare, it was reported that 89.8% of respondents did not submit these
charges for payment. There was a significant relationship between physician
specialty and whether or not a respondent submitted this charge. A very low
percentage of overall respondents submitted this charge. When asked, Why not?
the majority of respondents (57.6%) reported that they were not aware of this
charge. Forty two percent (42.4%) reported other reasons. The verbatim
responses indicated that the respondents did not submit this charge because: 1)
the time required is not worth the compensation, 2) they are not paid even when
they do submit the charge, and 3) insufficient time is spent on care plan
oversight. Fear of audit and lack of billing system capability was also
mentioned. Our software product, DocLink automatically tracked the time spent
on CPO and produced reports that could be used as the source document for
billing. DocLink solved these issues and passed HCFA (Health Care Financing Administration) and OIG (Office of
Inspector General) audits conducted by the Federal Government.

In September
1999 the Company launched its first Internet site with its first completely
Web-based application called net.Care. This software provided verification
regarding whether services rendered to a patient were eligible for
reimbursement. The net.Care application was a Web-enabled product that was
developed by the Company in conjunction with several clinical and
administrative professionals in home health care to verify whether services
rendered by a provider to a patient were eligible for reimbursement. In 1999,
the HCFA implemented OASIS (the Outcomes Assessment Information Set). This
program allowed home health care providers to upload an OASIS file, which was a
project implemented by the HCFA. The primary focus of the project was to
improve the quality of care; however, OASIS became the financial determinant of
reimbursement for home health care. OASIS determined eligibility for Medicare
as well as appropriateness of care and actual payment rates. There were many
instances in the assessment form that allowed the home health care agency to
contradict other portions of the assessment, albeit minor, thereby disallowing
proper charges for payment. Using net.Care as an audit tool helped to discover
such discrepancies before the information was sent to the state clinical
regulatory agencies or HCFA. This allowed changes to be implemented prior to
the submission of the data. These changes could be performed in minutes,
whereas a manual audit could take one to two hours. The net.Care product
reduced the labor costs associated with the time nurses spent on reviewing data
in a patients paper chart. It also reduced the chance of claims rejections for
documentation deficiencies. The product was also designed to detect conflicting
nurse responses; to assist with the coordination and preparation of a patients
plan of care; to recognize patients who may not be eligible for particular
services; and to make suggestions for completion of the patients plan of
treatment.

On June 30,
2000, the Company acquired certain assets of LuRo Associates, dba Health Tech,
Inc., a developer of financial and accounting software designed for the health
care industry. The Company exited this business effective December 31, 2004.

On November
15, 2000, the Company released its Internet-based ASP software product called
ClickMD that enabled health care providers to communicate and validate
pertinent and private information to physicians and other ancillary providers
while keeping the data secure. It reduced costs typically incurred in terms of
the time and expense required to communicate such information manually. This
product furnished health care providers with a means to send doctors orders
(and other vital patient information) to a physicians office, where the orders
would then be reviewed and authorized by the physician on his or her desktop
computer. ClickMD allowed a home care provider to scan in an order and send it
to a physician. At the doctors office, ClickMD alerted the physician with a
youve got mail type icon, where the physician could read the order on the
screen and affix his or her electronic signature by invoking a password.
ClickMD automatically delivered the signed order back to the home care provider
through the ASP and automatically printed the order to be stored in the paper
chart. While the physician was reviewing orders, ClickMD could provide him or
her with a timing routine, which also fed a database that furnished per-patient
oversight billing reports.

Intellectual Property

Management
believes that the SecureCare business model and software products are unique.
Currently, the company is not pursuing any of the applications for patents
previously submitted that were in various stages of the patent-granting
process, some or all of which are now in the abandonment stage. No assurance
can be given that any patent will be granted, however, or that any patent
granted would provide meaningful protection, or that any patent granted to the
Company will not be found to infringe upon any patents granted to others. The Company
has already received trademarks and servicemarks on a number of its product
features and functions. In October 2003, the Company was granted trademark
protection to SecureCare, the brand name of its primary product line.

8

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Government Regulation

Participants
in the healthcare industry are subject to extensive and frequently changing
regulation at the federal, state and local levels. The Internet and its
associated technologies are also subject to government regulation. Many
existing laws and regulations, when enacted, did not anticipate the methods of
healthcare Internet-based document exchange and e-signature capabilities that
the Company is developing. The Company believes, however, that these laws and
regulations may nonetheless be applied to the Companys healthcare business.
The Company believes that its products adhere to all applicable regulations
including CMS and HIPAA Internet based information mandates.

Current laws
and regulations that may affect the healthcare Internet-based electronic document
exchange and e-signature industry relate to the following:

|  |                                                                                                                             
|- | ----------------------------------------------------------------------------------------------------------------------------
|o | Confidential
patient medical record information;                                                                            
|  |                                                                                                                             
|o | The
electronic transmission of information from physicians offices to agencies,
pharmacies, and other healthcare providers;
|  |                                                                                                                             
|o | The use of
software applications in the diagnosis, cure, treatment, mitigation or
prevention of disease;                    
|  |                                                                                                                             
|o | Health
maintenance organizations, insurers, healthcare service providers and/or
employee health benefit plans; and          
|  |                                                                                                                             
|o | The
relationships between or among healthcare providers.                                                                    

Future
developments in laws that govern online activities (for example, laws that
impose Internet taxes or require costly technical requirements) might inhibit
the growth of the Internet and create uncertainty in the market, or in some
other manner have an adverse effect on the Internet. These developments could,
in turn, increasingly have a material adverse effect on our business,
prospects, financial condition and results of operations.

Employees

As of December
31, 2007, the Company had six full-time employees, including two employees in
sales and marketing, two employees in technology development, one employee in
customer support and one employee in finance and accounting. The Company also
had one part-time employee. The Companys ability to achieve its operational
and financial objectives in the future is dependent on its ability to continue
to attract, integrate, retain and motivate highly qualified technical and
customer support personnel. A competitive environment exists for attracting
such personnel. When the Company expands its operations, additional employees
will be necessary.

9

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ITEM 1A. RISK FACTORS

Some of the
information in this Report on Form 10-KSB contains forward-looking statements
that involve substantial risks and uncertainties. You can identify these
statements by forward-looking words such as may, will, expect, anticipate,
believe, estimate, and continue or similar words. You should read statements
that contain these words carefully because they (1) discuss our future
expectations; (2) contain projections of our future results of operation or of
our future financial condition; or (3) state other forward-looking information.
We believe it is important to communicate our expectations to people that may
be interested. However, unexpected events may arise in the future that we are
not able to predict or control. The risk factors that we describe in this
section, as well as any other cautionary language in this Report on Form
10-KSB, give examples of the types of uncertainties that may cause our actual
performance to differ materially from the expectations we describe in our
forward-looking statements. You should know that if the events described in
this section and elsewhere in this Report on Form 10-KSB occur, they could have
a material adverse effect on our business, operating results and financial
condition.

RISKS RELATED TO
BUSINESS

DEPENDENCE ON
MANAGEMENT. The Companys success depends to a large degree upon the skills of
its senior management team and current key employees and upon its ability to
identify, hire, and retain additional sales, marketing, technical and financial
personnel. The Company may be unable to retain its existing key personnel or
attract and retain additional key personnel. The Company depends particularly
upon the following key executives: Dr. Richard Corlin, Chairman of the Board;
Dennis Nasto, Principal Executive Officer and member of the Board of Directors;
Neil Burley, Principal Financial Officer and Principal Financial and Accounting
Officer; and Eugene Fry, Vice-President of Product Development and Technology.
The Company does not have employment contracts with these officers and key
employees. The Company does not maintain key person life insurance for any of
its officers or key employees. The Company also does not require its executives
or its employees to enter non-competition agreements with the Company. However,
the Company does seek to protect its confidential information through
confidentiality agreements. The loss of any of its key officers and employees
or the failure to attract, integrate, motivate, and retain additional key
employees could have a material adverse effect on the Companys business.
Additionally, the Company must attract additional, qualified sales staff.

WE ARE ENGAGED
IN A BUSINESS THAT PROVIDES HEALTHCARE ELECTRONIC COMMERCE SERVICES AND WE HAVE
INCURRED NET LOSSES SINCE INCEPTION. We began our current operations in the
fall of 1999 upon the closing of our reorganization with Link.com, Inc., a
privately-held Nevada corporation. We were originally incorporated under the
name Center Star Gold Mines, Inc. for the prior purpose of exploring commercial
gold deposits, and we owned various unpatented mining claims near Grangeville,
Idaho. We abandoned our last mining claim in 1995. Upon our reorganization with
Link.com, Inc. (the Reorganization) we changed our business to the healthcare
e-commerce industry, specifically connecting physicians, home health agencies
and nursing homes via electronic document exchange and e-signature solutions.
In August 2000 we changed our name to eClickMD, Inc. (or eClickMD). In February
of 2004 we changed our name to SecureCare Technologies, Inc. (the Company, or
SecureCare). We have developed or purchased and continue to develop Internet-based
document exchange and e-signature solutions for the healthcare industry. We did
not generate our first electronic document exchange and e-signature revenues
until the quarter ended September 30, 1999. As of December 31, 2007, we had an
accumulated deficit of $37,804,116. We expect to continue to incur significant
development, deployment and sales and marketing expenses in connection with our
business and to continue to incur operating losses for at least the next fiscal
year. We may never achieve or sustain profitability. The provision of services
using Internet technology in the healthcare e-commerce industry is a developing
business that is inherently riskier than businesses in industries where
companies have established operating histories.

WE WILL NOT
BECOME PROFITABLE UNLESS WE ACHIEVE SUFFICIENT LEVELS OF PHYSICIAN PENETRATION
AND MARKET ACCEPTANCE OF OUR SERVICES. Our business model depends upon usage by
a large number of physicians with a high volume of healthcare transactions and
the sale of home healthcare Internet-based document exchange and e-signature
solutions to home healthcare providers and other healthcare constituents. The
acceptance by physicians and other healthcare providers of our products and
services will require adoption of new methods of conducting business and
exchanging information. We cannot be assured that physicians or other health
care providers will integrate our services into their office workflow, or that
the healthcare market will accept our services as a replacement for traditional
methods of conducting healthcare transactions. The healthcare industry uses
existing computer systems that may be unable to access our Web-based solutions.
Customers using existing systems may refuse to adopt new systems when they have
made extensive investment in hardware, software and training for existing
systems or if they perceive that our products or services will not adequately
protect proprietary information. Failure to achieve broad physician or health
care organization penetration or successfully contracting with healthcare
participants, would have a material adverse effect on our business.

Achieving
market acceptance for our products and services will require substantial
marketing efforts and expenditure of significant funds to create awareness and
demand by participants in the healthcare industry. Our management believes that
we must gain significant market share with our services before our competitors
introduce alternative services with features similar to our services. There can
be no assurance that we will be able to succeed in positioning our services as
a preferred method for healthcare Internet-based electronic document exchange
and e-signature, or that any pricing strategy that we develop will be
economically viable or acceptable to the market. Failure to successfully market
our products and services would have a material adverse effect on our business,
financial condition and operating results.

OUR BUSINESS
PROSPECTS WILL SUFFER IF WE ARE NOT ABLE TO QUICKLY AND SUCCESSFULLY DEPLOY OUR
SYSTEMS AND PRODUCTS. We believe that our business prospects will suffer if we
do not deploy our services quickly. We began allowing access to our Web-based
electronic document exchange and e-signature solutions system in November of
2000 and intend to expand deployment of access to our Web-based products and
services during the year 2008 and future years, although there can be no
assurance that we will be able to continue to do so during this time, or at
all. In order to deploy our services, in some cases, we must integrate our
architecture with our channel partners, physicians, payers and home
healthcare providers systems. We will need to expend substantial resources to
integrate our systems with the existing computer systems of large healthcare
organizations, home health care organizations and physicians. We have limited
experience in doing so, and may experience delays in the integration process.
These delays would, in turn, delay our ability to generate revenue from our
services and may have a material adverse effect on our business, financial
condition and operating results. As we continue to deploy our electronic
document exchange and e-signature products and services, we may need to expand
and adapt it to accommodate additional users, increased transaction volumes and
changing customer requirements. This expansion and adaptation could be costly.
We may be unable to expand or adapt our network infrastructure to meet
additional demand or our customers changing needs on a timely basis and at a
commercially reasonable cost, or at all. Any failure to deploy, expand or adapt
our system quickly could have a material adverse effect on the Companys
business, financial condition and operating results.

10

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WE DO NOT
CURRENTLY HAVE A SUBSTANTIAL CUSTOMER BASE AND OUR REVENUES WILL INITIALLY COME
FROM HOME HEALTHCARE PROVIDERS IN A SMALL NUMBER OF GEOGRAPHIC MARKETS. We
currently do not have a substantial customer base. In addition, we expect that
initially we will generate a significant portion of our revenue from providing
our products and services in Texas, Louisiana, North Carolina, Virginia,
Florida, Minnesota, Wisconsin, Oklahoma, Missouri, and Alabama. If we do not
generate as much revenue in this market or from these home healthcare providers
as expected, or expand to additional markets and to other providers of healthcare as
expected, our revenue could be significantly reduced, which would have a
material adverse effect on our business, financial condition and operating
results.

WE ARE SUBJECT
TO SIGNIFICANT COMPETITION. Our business operates in a highly competitive
environment. Many healthcare industry participants are consolidating to create
integrated healthcare delivery systems with greater market power. As the
healthcare industry consolidates, competition to provide products and services
to industry participants will become more intense and the importance of
establishing a relationship with each industry participant will become greater.
These industry participants may try to use their market power to negotiate
price reductions for our products and services. If forced to reduce our prices,
our operating results could suffer if we cannot achieve corresponding
reductions in our expenses.

WE MAY
EXPERIENCE SIGNIFICANT DELAYS IN GENERATING REVENUES FROM OUR SERVICES BECAUSE
POTENTIAL CUSTOMERS COULD TAKE A LONG TIME TO EVALUATE THE PURCHASE OF OUR
SERVICES. A key element of our strategy is to market our services directly to
large healthcare organizations, including home health care and durable medical
equipment organizations. We do not control many of the factors that will
influence physicians, home healthcare providers and suppliers buying
decisions. We expect that the sales and implementation process will be lengthy
and will involve some technical evaluation and commitment of capital and other
resources by home healthcare agencies, physicians, payers and suppliers. The
sale and implementation of our services are subject to delays due to such
organizations internal budgets and procedures for approving large capital
expenditures and deploying new workflow technologies within their networks.

OUR BUSINESS
WILL SUFFER IF THE INTEGRITY AND SECURITY OF OUR SYSTEMS ARE INADEQUATE. If we
are successful in delivering our Internet-based electronic document exchange
and e-signature solutions to the healthcare industry, our business could be
harmed if we or our present or future customers were to experience any system
delays, failures or loss of data. Although we do have significant safeguards in
place for emergencies, the occurrence of a catastrophic event or other system
failure at our facilities could interrupt our operations or result in the loss
of stored data. In addition, we will depend on the efficient operation of
Internet connections from customers to our systems. These connections, in turn,
depend on the efficient operation of Web browsers, Internet service providers
and Internet backbone service providers. In the past, Internet users have
occasionally experienced difficulties with Internet and online services due to
system failures. Any disruption in Internet access provided by third parties
could have a material adverse effect on our business, financial condition and
operating results. Furthermore, we will be dependent on hardware suppliers for
prompt delivery, installation and services of equipment used to deliver our
services.

DESPITE THE IMPLEMENTATION OF
SECURITY MEASURES, OUR INFRASTRUCTURE MAY BE VULNERABLE TO DAMAGE FROM PHYSICAL
BREAK-INS, COMPUTER VIRUSES, PROGRAMMING ERRORS, ATTACKS BY HACKERS OR SIMILAR
DISRUPTIVE PROBLEMS. A material security breach could damage our reputation or
result in liability to us. We retain confidential customer information in our
processing center and on our servers. An experienced computer user who is able
to access our computer systems could gain access to confidential Company
information. Furthermore, we may not have a timely remedy to secure our system
against any hacker who has been able to penetrate our system. Therefore, it is
critical that our facilities and infrastructure remain and are perceived by the
marketplace to be secure. The occurrence of any of these events could result in
the interruption, delay or cessation of service, which could have a material
adverse effect on our business, financial condition and operating results. A
significant barrier to Internet-based electronic document exchange and
e-signature are the issues presented by the secure transmission of confidential
information over public networks. We rely on encryption and authentication technology
licensed from third parties to secure Internet transmission of and access to
confidential information. There can be no assurance that advances in computer
capabilities, new discoveries in the field of cryptography, or other events or
developments will not result in a compromise or breach of the methods used to
protect customer transaction data. A party who is able to circumvent security
measures could misappropriate or alter proprietary information or cause
interruptions in operations. If any such compromise of our security or
misappropriation of proprietary information were to occur, it could have a
material adverse effect on our business, financial condition and operating
results. We may be required to expend significant capital and other resources to
protect against such security breaches or to alleviate problems caused by
security breaches. We may also be required to spend significant resources and
encounter significant delays in upgrading our systems to incorporate more
advanced encryption and authentication technology as it becomes available.
Concerns over the security of the Internet and other online transactions and
the privacy of users may also inhibit the growth of the Internet and other
online services generally, and our services in particular, especially as a
means of conducting commercial and/or healthcare-related transactions. There
can be no assurance that our security measures will prevent security breaches
or that failure to prevent such breaches will not have a material adverse
effect on our business, financial condition and operating results.

11

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OUR OPERATIONS
WILL ALSO BE DEPENDENT ON THE DEVELOPMENT AND MAINTENANCE OF SOFTWARE. Although
we intend to use all necessary means to ensure the efficient and effective
development and maintenance of software, both activities are extremely complex,
and thus, are frequently characterized by unexpected problems and delays.

IN THE EVENT
THAT WE PROPOSE EXPANSION THROUGH ACQUISITIONS, IT MAY BE DIFFICULT TO
IMPLEMENT AND MAY EXPOSE US TO ADDITIONAL RISK. We may seek to acquire
businesses that are complementary to our core businesses. Such emphasis is not,
however, intended to limit, in any manner our ability to pursue acquisition
opportunities in other related businesses or in other industries. We may enter
into further acquisitions, joint ventures, strategic alliances or other
business combinations. These transactions may materially change the nature and
scope of our business. Although our management will endeavor to evaluate the
risks inherent in any particular transaction, there can be no assurance that we
will properly ascertain all such risks. In addition, no assurances can be given
that we will succeed in consummating any such transactions, that such
transactions will ultimately provide us with the ability to offer the services
described or that we will be able to successfully manage or integrate any
resulting business. The success of our acquisition program will depend on,
among other things, the availability of suitable candidates, the availability
of funds to finance transactions, and the availability of management resources
to oversee the operation of resulting businesses. Financing for such
transactions may come from several sources, including, without limitation cash
and cash equivalents on hand, proceeds from new indebtedness, or proceeds from
the issuance of additional common stock, preferred stock, convertible debt or
other securities. The issuance of additional securities, including common
stock, or other convertible securities could result in substantial dilution of
the percentage ownership of the Companys stockholders at the time of any such
issuance, and substantial dilution of our earnings per share. The proceeds from
any financing may be used for costs associated with identifying and evaluating
prospective candidates, and for structuring, negotiating, financing and
consummating any such transactions and for other general corporate purposes. We
do not intend to seek stockholder approval for any such transaction or security
issuance unless required by applicable law or regulation.

INTEGRATING
OUR BUSINESS OPERATIONS WITH BUSINESSES WE MAY ACQUIRE IN THE FUTURE, MAY BE
DIFFICULT AND MAY HAVE A NEGATIVE IMPACT ON OUR BUSINESS. We may acquire
additional businesses in the future. The integration of companies or businesses
that we may acquire in the future involves the integration of separate
companies that have previously operated independently and have different
corporate cultures. The process of combining such companies may be disruptive
to their businesses and may cause an interruption of, or a loss of momentum in,
such businesses as a result of the following difficulties, among others, loss
of key employees or customers; possible inconsistencies in standards, controls,
procedures and policies among the companies being combined and the need to implement
and harmonize company-wide financials, accounting, information and other
systems; failure to maintain the quality of services that such companies have
historically provided; the need to coordinate geographically diverse
organizations; and the diversion of managements attention from our day-to-day
business and that of any company or business that we may acquire, as a result
of the need to deal with the above disruptions and difficulties and/or the
possible need to add management resources to do so. Such disruptions and
difficulties, if they occur, may cause us to fail to realize the benefits that
we currently expect to result from such integration and may cause material
adverse short- and long-term effects on our operating results and financial
condition.

UNCERTAINTIES
IN REALIZING BENEFITS FROM A COMBINATION. Even if we are able to integrate the
operations of an acquired company or business into the company successfully,
there can be no assurance that such integration will result in the realization
of the full benefits that we expect to result from such integration or that
such benefits will be achieved within the time frame that we expect. Revenue
enhancements from cross-selling complementary services may not materialize as
expected. The benefits from the combination may be offset by costs incurred in
integrating the companies. The benefits from the transaction may also be offset
by increases in other expenses, by operating losses or by problems in the
business unrelated to the transaction.

DEPENDENCE ON
PROPRIETARY TECHNOLOGY. The success of our business is dependent to a
significant extent on our ability to protect the proprietary and confidential
aspects of our technology. Although we have filed multiple provisional patent
applications on some of our processes, our technology is not patented and
existing copyright laws offer only limited practical protection. Currently, the
company is not pursuing any of the applications for patents previously
submitted that were in various stages of the patent-granting process, some of
all of which are now in the abandonment stage. No assurance can be given that
any patent will be granted, however, or that any patent granted would provide
meaningful protection, or that any patent granted to the Company will not be found
to infringe upon any patents granted to others. The Company has already
received trademarks and servicemarks on a number of its product features and
functions. In October 2003, the Company was granted trademark protection to
SecureCare, the brand name of its primary product line. We rely on a
combination of trade secret, copyright and trademark laws, license agreements,
nondisclosure and other contractual provisions and technical measures to
establish and protect our proprietary rights. There can be no assurance that
the legal protections afforded to us or the steps taken will be adequate to
prevent misappropriation of our technology. In addition, these protections do
not prevent independent third-party development of competitive products or
services. Our management believes that our products, services, trademarks and
other proprietary rights do not infringe upon the proprietary rights of third
parties. There can be no assurance, however, that third parties will not assert
infringement claims against us or that any such assertion will not require us
to enter into a license agreement or royalty arrangement with the party
asserting the claim. As competing healthcare information systems increase in
complexity and overall capabilities or the functionality of these systems
further overlap, providers of such systems may become increasingly subject to
infringement claims. Responding to and defending any such claims may distract
the attention of our management and otherwise have a material adverse effect on
our business, financial condition and operating results.

WE MAY NOT BE
ABLE TO SECURE FUNDING IN THE FUTURE NECESSARY TO OPERATE OUR BUSINESS AS
PLANNED. We require substantial working capital to fund our business. We have
had and are experiencing significant operating losses and negative cash flow
from operations since the closing of the Reorganization in December 2003 and
expect this to continue for the foreseeable future. In addition, we may incur
significant capital expenditures in connection with our planned expansion of
our products and services. Our capital requirements depend on several factors,
including the rate of market acceptance of our products and services, our
ability to expand our customer base, increased sales and marketing expenses,
the growth of the number of our employees and related expenses and other
factors. If capital requirements vary materially from those currently planned,
we will require additional financing sooner than anticipated. If additional
funds are raised through issuance of equity securities, the percentage
ownership of our stockholders will be reduced, and these equity securities may
have rights, preferences or privileges senior to those of the holders of our
common stock. Additional financing may not be available when needed on terms
favorable to us or at all. If adequate funds are not available or are not
available on acceptable terms, we may be unable to develop or enhance our
products and services, adequately support and maintain relationships with key
partners and customers, to take advantage of future opportunities or respond to
competitive pressures.

12

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THE SUCCESSFUL
OPERATION OF OUR BUSINESS DEPENDS UPON THE SUPPLY OF CRITICAL ELEMENTS AND
MARKETING RELATIONSHIPS FROM OTHER COMPANIES. We depend upon third parties for
several critical elements of our business, including various technology,
infrastructure, customer service and marketing components. We rely on private
third-party providers for our Internet and telephony connections and for
co-location of a significant portion of our communications servers. Any
disruption in the services provided by any of these suppliers, or any failure
by them to handle current or higher volumes of activity could have a material
adverse effect on our business, prospects, financial condition, operating
results and cash flows. To obtain new customers, we have channel partner
reseller and sales agent agreements with health care information technology
(HIT) companies and other software vendors. These arrangements typically are
not exclusive and do not extend over a significant period of time. Failure to
continue these relationships on terms that are acceptable to us or to continue
to create additional relationships could have a material adverse effect on our
business, prospects, financial condition, operating results and cash flow.

WE ARE EXPOSED
TO RISK IF WE CANNOT MAINTAIN OR ADHERE TO OUR INTERNAL CONTROLS AND
PROCEDURES. We have established and continue to maintain, assess and update our
internal controls and procedures regarding our business operations and
financial reporting. Our internal controls and procedures are designed to
provide reasonable assurances regarding our business operations and financial
reporting. However, because of the inherent limitations in this process,
internal controls and procedures may not prevent or detect all errors or
misstatements. To the extent our internal controls are inadequate or not
adhered to by our employees, our business, financial condition and operating
results could be materially adversely affected.

If we are not
able to maintain internal controls and procedures in a timely manner, or
without adequate compliance, we may be unable to accurately report our
financial results or prevent fraud and may be subject to sanctions or
investigations by regulatory authorities such as the Securities and Exchange
Commission. Any such action, or restatement of prior-period financial results,
could harm our business or investors confidence in our company, and could
cause our stock price to fall.

GOING CONCERN.
The financial statements have been prepared on the assumption that the Company
will continue as a going concern. The Company sustained net losses of
$2,386,373 and $20,352,778 for the years ended December 31, 2007 and 2006,
respectively. The Company has accumulated losses through December 31, 2007 of
$37,804,116 (including a non-recurring loss on early extinguishment of debt
totaling $19,030,648 incurred in the fourth quarter of 2006 and $381,358
incurred in the second quarter of 2007). Cash used in operating activities for
the same periods aggregated $1,347,530 and $598,209, respectively. Total
liabilities at December 31, 2007 of $1,721,133 significantly exceed total
assets of $287,403. As of the date of this report, the Company is unable to
meet all of its short-term obligations because of shortages of cash. The
Companys continued existence depends upon the success of managements efforts
to raise additional capital necessary to meet the Companys obligations as they
come due, and to obtain sufficient capital to execute its business plan. The
Company intends to obtain capital primarily through issuances of debt or
equity. There can be no degree of assurance that the Company will be successful
in completing additional financing transactions. Failure to generate additional
revenues, raise additional capital or manage discretionary spending could have
a material adverse effect on the Companys ability to continue as a going
concern and to achieve its intended business objectives. The accompanying
unaudited financial statements do not include any adjustments to reflect the
possible effects on the recoverability and classification of assets or
classification of liabilities which may result from the inability of the
Company to continue as a going concern.

RISKS RELATED TO
INDUSTRY

RAPIDLY
CHANGING TECHNOLOGY MAY ADVERSELY AFFECT OUR BUSINESS. All businesses which
rely on technology, including the healthcare electronic document exchange and
e-signature workflow solutions business that we are developing, are subject to,
among other risks and uncertainties, rapid technological change, changing
customer needs, frequent new product introductions, and evolving industry
standards.

Internet
technologies are evolving rapidly, and the technology used by any
Internet-based business is subject to rapid change and obsolescence. These
market characteristics are exacerbated by the emerging nature of the market and
the fact that many companies are expected to introduce new Internet products
and services in the near future. In addition, use of the Internet may decrease
if alternative protocols are developed or if problems associated with increased
Internet use are not resolved. As the communications, computer and software
industries continue to experience rapid technological change, we must be able
to quickly and successfully modify our services so that we adapt to such
changes. There can be no assurance that we will not experience difficulties
that could delay or prevent the successful development and introduction of our
healthcare document exchange and e-signature work-flow solutions services or
that we will be able to respond to technological changes in a timely and
cost-effective manner. Moreover, technologically superior products and services
could be developed by competitors. These factors could have a material adverse
effect upon our business, financial condition and operating results.

13

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THE
DESIRABILITY OF OUR SERVICES IS CONTINGENT ON OUR ABILITY TO CONTINUE TO COMPLY
WITH PRESENT AND FUTURE GOVERNMENT REGULATIONS. Our services may be subject to
extensive and frequently changing regulation at federal, state and local
levels. The Internet and its associated technologies are also subject to
government regulation. Many existing laws and regulations, when enacted, did
not anticipate the methods of healthcare solutions we are developing. We
believe, however, that these laws and regulations may nonetheless be applied to
our healthcare solutions business. It may take years to determine the extent to
which existing laws and regulations governing general issues of property
ownership, sales and other taxes, libel, negligence and personal privacy are
applicable to the Internet. Laws and regulations may also be adopted in the
future that address Internet-related issues, including security, privacy and
encryption, pricing, content, copyrights and other intellectual property;
contracting and selling over the Internet; and distribution of products and
services over the Internet. Accordingly, our healthcare solutions business may
be affected by current regulations as well as future regulations specifically
targeted to this new segment of the healthcare industry. While our products are
designed to aid our customers compliance with certain government regulations,
changes in these regulations or their repeal could reduce the need for our
products.

RISKS RELATED TO
STOCK

OUR LIMITED
OPERATING HISTORY MAKES IT DIFFICULT TO FORECAST OUR REVENUES AND EXPENSES. Our
limited operating history makes it difficult to forecast our future revenues
and expenses. Although our revenues increased from the closing of the
Reorganization in December 2003 through December 2005, quarterly revenue growth
may not be indicative of future performance. Revenues for the twelve months
ended December 31, 2007 were $134,065 compared to $244,815 for the twelve
months ended December 31, 2006. This 45% decrease in sales reflects customer
attrition after the Company implemented a staff reduction in December, 2005.

We base our
forecast for expenses, in part, on future revenue projections. We incur
expenses in advance of revenues, and we may not be able to quickly reduce
spending if our revenues are lower than expected. In particular, we expect to
incur additional costs and expenses related to the development of relationships
with our channel partners, the enterprise and billing software systems that are
used to run our targeted end users businesses (pharmacies, home health
agencies, DME providers, Long Term Care facilities and Physician practices),
the development and expansion of our sales force, the development and
enhancement of existing and new products and services, and the expansion of our
management team.

We expect that
our business, stock price, operating results and financial condition could be
materially adversely affected if our revenues do not meet our projections or
our net losses are greater than expected.

The expected
fluctuations of our quarterly results could cause our stock price to fluctuate
or decline.

We expect that
our quarterly operating results will fluctuate significantly in the future
based upon a number of factors, many of which are not within our control. We
plan to further increase our operating expenses in order to expand our sales
and marketing activities and broaden our product offerings. We base our operating
expenses on anticipated market growth, and our operating expenses are
relatively fixed in the short term. As a result, if our revenues are lower than
we expect, our quarterly operating results may not meet the expectations of
public market analysts or investors, which could cause the market price of our
common stock to decline. Our quarterly results may fluctuate in the future as a
result of many other factors, including the following:

|  |                                                                                                                      
|- | ---------------------------------------------------------------------------------------------------------------------
|o | Our ability
 to retain our existing customers and to attract new channel partners;                                   
|  |                                                                                                                      
|o | Customer
 acceptance of our pricing model;                                                                           
|  |                                                                                                                      
|o | Changes in
 the level of demand for our products or services;                                                        
|  |                                                                                                                      
|o | Our success
 in expanding our sales and marketing programs;                                                          
|  |                                                                                                                      
|o | The number,
 timing and significance of product enhancements and new product announcements
 by us or our competitors;
|  |                                                                                                                      
|o | The length
 of our sales cycle;                                                                                      
|  |                                                                                                                      
|o | The level of
 Internet-based electronic document exchange and e-signature transactions;                              
|  |                                                                                                                      
|o | The
 evolution of related technology and the emergence of standards and competing
 technology; and                   
|  |                                                                                                                      
|o | Changes in
 the level of our operating expenses.                                                                     

These risks
and uncertainties are particularly significant for companies such as ours that
are in the evolving market for Internet-based products and services. In
addition, other factors that may affect our quarterly results are set forth
elsewhere in these risk factors. As a result of these and other factors, our
revenues and expenses may not be predictable.

Due to the
uncertainty surrounding our revenues and expenses, we believe that
quarter-to-quarter comparisons of our historical operating results may not be
meaningful and our historical operating results should not be relied upon as an
indicator of our future performance.

14

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RISKS RELATED TO GROWTH

PRICE
ADJUSTMENTS COULD DECREASE NEW CUSTOMER SIGN UP RATES, INCREASE CANCELLATION
RATES, OR DECREASE REVENUE WHICH COULD ADVERSELY AFFECT OUR FINANCIAL RESULTS.
While management is currently comfortable with our pricing strategy, responding
to unforeseen opportunities or changes in technology may result in adjustments
to our pricing strategy. Price increases may decrease new customer sign up
rates or increase cancellation rates, which could adversely affect our
financial results. Price decreases, due to competition or market penetration,
could also adversely affect our financial results.

INCREASED COST
OF EMAIL TRANSMISSIONS COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR BUSINESS. We
rely on email for the delivery of our fax notification. If regulations or other
changes in the industry lead to a charge associated with the sending or
receiving of email messages, the cost of providing our services would increase
and, if significant, could adversely affect our business, prospects, financial
condition, operating results and cash flow.

IF WE
EXPERIENCE EXCESSIVE CREDIT CARD CHARGES OR CANNOT MEET EVOLVING CREDIT CARD
COMPANY MERCHANT STANDARDS IMPOSED BY CREDIT CARD COMPANIES, WE COULD LOSE THE
RIGHT TO ACCEPT CREDIT CARDS FOR PAYMENT AND OUR SUBSCRIBER BASE COULD DECREASE
SIGNIFICANTLY. We anticipate offering credit cards as a means for our customer
base to pay for our services, and we anticipate a large number of customers
taking advantage of this feature. We could incur losses from claims that the
customer did not authorize the credit card transaction to purchase our service.
If the number of unauthorized credit card transactions becomes excessive, we
could be assessed substantial fines for excessive chargebacks and we could lose
the right to accept credit cards for payment. In addition, as they have
recently done, credit card companies may again change the merchant standards
required to utilize their services. If we are unable to meet these new
standards we could be unable to accept credit cards and our paid customer base
could significantly decrease, which could have a material adverse effect on our
business, prospects, financial condition, operating results and cash flow.

OUR BUSINESS
COULD SUFFER IF WE CANNOT OBTAIN TELEPHONE NUMBERS, ARE PROHIBITED FROM
OBTAINING TELEPHONE NUMBERS OR ARE LIMITED TO DISTRIBUTING NUMBERS TO ONLY
CERTAIN CUSTOMERS. Our future success depends on our ability to (i) procure
large quantities of telephone numbers in the United States and foreign
countries in desirable locations at a reasonable cost and (ii) offer our
services to our prospective customers without restrictions. Our ability to
procure and distribute telephone numbers depends on factors such as applicable
regulations, the practices of telecommunications carriers that provide
telephone numbers, the cost of these telephone numbers and the level of demand
for new telephone numbers. Failure to obtain telephone numbers in a timely and
cost-effective manner or regulatory restrictions on our ability to market our
services without restriction may hinder or prevent us from entering some
foreign markets or hamper our growth in domestic markets, and may have a
material adverse effect on our business, prospects, financial condition,
operating results and cash flows.

In addition,
future growth in our customer base, together with growth in the customer bases
of providers of other fax and/or voicemail to email and unified messaging
services, may increase the demand for large quantities of telephone numbers,
which could lead to insufficient capacity and an inability on our part to
acquire the necessary telephone numbers to accommodate our future growth.

OUR BUSINESS
WILL BE HIGHLY DEPENDENT ON OUR BILLING SYSTEM. A significant part of our
revenues depends on prompt and accurate billings processes. Customer billing is
a highly complex process, and our billings system must efficiently interface
with third party systems, such as those of credit card processing companies.
Our ability to accurately and efficiently bill our subscribers is dependent on
the successful operation of our billing system and the third party systems upon
which we rely, such as our credit card processor, and our ability to provide
these third parties the information required to process transactions. In
addition, our ability to offer new paid services or alternative-billing plans
is dependent on our ability to customize our billing system. As the number of
our paid customers continues to grow, we will need to continue to automate our
billing systems and procedures. We are in the process of upgrading our current
billing system to meet the needs of our growing subscriber base. Any failure to
properly implement the upgraded system or to manage the new system and
procedural transitions could impair our ability to properly bill our current
customers or attract and service new customers. In addition, any failures or
errors in our current billing systems or procedures or resulting from any
upgrades to our billing systems or procedures could materially and adversely
affect our business and financial results.

OUR FAILURE TO
PROPERLY MANAGE GROWTH COULD HARM OUR BUSINESS. We are preparing for rapid
growth and anticipating expansion into new markets and countries. We expect
this expansion to place a significant strain on our management, operational and
financial resources. As a result, we must be ready to expand and adapt our
operational infrastructure and increase the number of our personnel in certain
areas. Our business relies on our data systems, billing systems for our fee based
and other services, and other operational and financial reporting and control
systems. All of these systems will become increasingly complex due to the
growing diversification and complexity of our business and to acquisitions of
new businesses with different systems. To manage further growth, we will need
to continue to automate, improve or replace our data, billing and other
existing operational, customer service and financial systems, procedures and
controls. In particular, as our services for which we bill users grow, any
failure of our billing systems to accommodate the increasing number of
transactions and accurately bill users could adversely affect our business and
ability to collect revenue. These upgrades and improvements will require a
dedication of resources and in some cases are likely to be complex. Any failure
to properly implement and manage these systems and procedural transitions could
impair our ability to attract and service customers, and could cause us to
incur higher operating costs and delays in the execution of our business plan.
If we cannot manage growth effectively, our business and operating results
could suffer.

15

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WE MAY BE
SUBJECT TO RISKS FROM INTERNATIONAL OPERATIONS. If management feels it makes
sense to expand our business operations to countries outside of the United
States, our future results could be materially adversely affected by a variety
of uncontrollable and changing factors including, among others, foreign
currency exchange rates; political or social unrest or economic instability in
a specific country or region; trade protection measures and other regulatory
requirements which may affect our ability to provide our services; difficulties
in staffing and managing international operations; and adverse tax consequences,
including imposition of withholding or other taxes on payments by subsidiaries
and affiliates. Any or all of these factors could have a material adverse
impact on our future business, prospects, financial condition, operating
results and cash flows.

In addition, if we
expand to new international markets, we will have very
limited experience in marketing and operating our services in such markets.
 In addition, certain international markets may be slower than
domestic markets in adopting the Internet and so our operations in
international markets may not develop at a rate that supports our level of
investments.

ITEM 2. PROPERTIES

On February 9,
2008, the Company relocated its principal executive office to approximately
1,500 square feet of leased office space at a new location in Austin, Texas.
The Company has leased this new location for two years. The company believes
that its facilities are adequate for the Companys current operations and that
additional leased space can be obtained when its expansion plans commence.

ITEM 3. LEGAL PROCEEDINGS

On March 7,
2008, the Company received a letter from an attorney for an investor demanding
payment on a promissory note issued in 2004 with a principal balance of
$63,500. Another party has advised the Company that it is the legal owner of
the promissory note. No legal action has been commenced and the Company is
attempting to resolve the matter between the parties. The promissory note has
been carried on the Companys books as a liability and management does not
believe that the outcome of this matter will have a material effect on the Companys financial
position, operating results or cash flows. However, there can be no assurance
that any legal proceeding that develops as a result of this matter will not have a material impact.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS

On February
28, 2007, the Board of Directors of the Company commenced written solicitation
of the holders of its common stock and its Series C Stock, as of February 23,
2007 (the Record Date) to grant the Companys Board of Directors
discretionary authority to effect a reverse stock split of two hundred for one
in order for the Company to have sufficient shares to meet its existing
obligations. This proposed reverse stock split did not change the number of
shares of common stock (50,000,000) that the Company is authorized to issue.
After completion of the taking of written shareholder consents, of the
approximate 232 million shares and share equivalents entitled to vote on the
proposal, approximately 167 million or 72% voted in favor of the proposal;
approximately 85,000 or .04% voted against the proposal and .01% abstained.

The Company
has not declared or paid cash dividends on its common stock and presently has
no plans to do so. Any change in the Companys dividend policy will be at the
sole discretion of the Board of Directors and will depend on the Companys
profitability, financial condition, capital needs, future loan covenants,
general economic conditions, future prospects and other factors deemed relevant
by the Board of Directors. The Company currently intends to retain earnings for
use in the operation and expansion of the Companys business and does not
anticipate paying cash dividends in the foreseeable future.

16

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PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON STOCK
AND RELATED STOCKHOLDER MATTERS

On May 21,
2007 the Companys stock began trading on the Over-The-Counter Bulletin Board
under the new symbol SCUC. The stock symbol change was made to reflect a 1 for
200 reverse stock split of the Companys common stock that was affected on the
National Association of Securities Dealers OTCBB. Prior to May 21, 2007 the
Companys stock symbol was SCUI (from the period December 28, 2004 through May
18, 2007). The following table sets forth the range of high and low prices as
reported on the National Association of Securities Dealers OTCBB for the
periods indicated. The quotations reflect inter-dealer prices without retail
mark-up, mark-down or commission, and may not necessarily represent actual
prices. All prices below have been restated for all periods presented to
reflect a 1 for 200 reverse stock split of the Companys common stock that was
affected on the National Association of Securities Dealers OTCBB on May 21, 2007.

| |                              |  |   |       |  |   |       | 
| | ---------------------------- |  | - | ----- |  | - | ----- | 
| | Fiscal Year 2007             |  |   | High  |  |   | Low   | 
| |                              |  |   |       |  |   |       | 
| | Quarter
  Ended March 31     |  | $ | 14.00 |  | $ | 6.00  | 
| | Quarter
  Ended June 30      |  | $ | 7.00  |  | $ | 6.00  | 
| | Quarter
  Ended September 30 |  | $ | 6.00  |  | $ | 0.80  | 
| | Quarter
  Ended December 31  |  | $ | 1.57  |  | $ | 1.50  | 
| |                              |  |   |       |  |   |       | 
| | Fiscal Year 2006             |  |   | High  |  |   | Low   | 
| |                              |  |   |       |  |   |       | 
| | Quarter
  Ended March 31     |  | $ | 70.00 |  | $ | 36.00 | 
| | Quarter
  Ended June 30      |  | $ | 50.00 |  | $ | 20.00 | 
| | Quarter
  Ended September 30 |  | $ | 32.00 |  | $ | 18.00 | 
| | Quarter
  Ended December 31  |  | $ | 32.00 |  | $ | 14.00 | 

The common
stock is deemed to be a penny stock as that term is defined in Rule 3a51-1
promulgated under the Securities Exchange Act of 1934 (the Exchange Act).

Penny stocks
are stocks:

| |   |                                                                                                                                                                                                                                                                                                           
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | with a price
  of less than $5.00 per share;                                                                                                                                                                                                                                                              
| |   |                                                                                                                                                                                                                                                                                                           
| |  | that are not traded on a recognized national exchange;                                                                                                                                                                                                                                                  
| |   |                                                                                                                                                                                                                                                                                                           
| |  | whose prices
  are not quoted on the Nasdaq automated quotation system (Nasdaq listed stock
  must have a price of not less than $5.00 per share); or                                                                                                                                                     
| |   |                                                                                                                                                                                                                                                                                                           
| |  | issued by
  companies with net tangible assets less than $2.0 million (if the issuer has
  been in continuous operation for at least three years) or $5.0 million (if in
  continuous operation for less than three years), or with average revenues of
  less than $6.0 million for the last three years.

Section 15(g)
of the Exchange Act and Rule 15g-2 promulgated under the Securities Act require
broker/dealers dealing in penny stocks to provide potential investors with a
document disclosing the risks of penny stocks and to obtain manually signed and
dated written receipt of the document before effecting a transaction in a penny
stock for the investors account. Compliance with such requirements may make it
more difficult for holders of the common stock to resell their shares to third
parties or otherwise which could have a material adverse affect on the
liquidity and market price of the common stock.

As of December
31, 2007, the Company had 1,312 holders of record of its common stock.

ITEM 6. MANAGEMENTS DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following
discussion should be read in conjunction with the consolidated financial
statements of the Company and the notes thereto included elsewhere in this
Report on Form 10-KSB. The discussion in this section of this Report on Form
10-KSB contains forward-looking statements that involve risks and
uncertainties. The Companys actual results could differ materially from those
discussed herein. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed in this section, those
discussed in Risk Factors and those discussed elsewhere in this Report on Form
10-KSB.

Forward Looking Statements

This Annual
Report on Form 10-KSB contains forward-looking statements as such term is
defined in the Private Securities Litigation Reform Act of 1995 and information
relating to the Company that are based on the beliefs of the Companys
management as well as assumptions made by and information currently available
to the Companys management. When used in this report, the words anticipate,
believe, estimate, expect and intend and words or phrases of similar
import, as they relate to the Company or Company management, are intended to
identify forward-looking statements. Such statements reflect the current risks,
uncertainties and assumptions related to certain factors including, without
limitations, competitive factors, general economic conditions, customer
relations, relationships with vendors, the interest rate environment,
governmental regulation and supervision, seasonality, distribution networks,
product introductions and acceptance, technological change, changes in industry
practices, onetime events and other factors described herein and in other
filings made by the company with the Securities and Exchange Commission. Based
upon changing conditions, should any one or more of these risks or
uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. The Company does not
intend to update these forward-looking statements.

17

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Overview

SecureCares
management believes that the Company is a leading provider of Internet-based
document exchange and e-signature solutions for the healthcare industry.

The Companys
proprietary technology offers workflow solutions that enable documents to be
sent, retrieved, signed and remotely viewed anywhere in the world, between
providers of healthcare, while protecting patient privacy as required by law.

The Companys
Internet-based Sfax with Digital Signature is the only secure EFR (electronic
fax record) that is 100 percent dedicated to the healthcare industry. The
product is a HIPAA-ready (Health Insurance Portability and Accountability Act)
work flow solution that saves end-users up to 95 percent of the time and up to
80 percent of the cost of manual faxing. It provides a complete log and audit
trail for all fax documents and completely eliminates the manual paper
processing of fax documents. Sfax is distributed to end-users through the
Companys network of health care software vendors and value-added resellers.

The Companys
Internet-based SecureCare.net portal is an electronic document exchange and
e-signature workflow solution that was built with Microsofts dotNet
state-of-the art development tools. The SecureCare.net portal is tailored to
the needs of physicians, clinics and home healthcare, hospice and durable
medical equipment providers. This end-to-end solution offers a money-saving
approach to accessing information and managing time-consuming forms and
authorizations. It eliminates paper while enhancing the physicians ability to
capture fees for otherwise unbilled time and services.

The Company
markets its services to customers throughout the United States; currently
operating from its Austin, Texas-based corporate headquarters.

The Company
intends to continue to utilize the Internet to provide browser-initiated
healthcare document exchange and e-signature solutions that facilitate the
confidential, on-line exchange of healthcare information for many participants
in the healthcare industry. Based on the technology and products in place,
other applications can and will be developed that will enhance the Companys
position in the physicians office and in the offices of other providers of
healthcare. These services using Internet technology in the healthcare industry
are subject to risks, including but not limited to those associated with
competition from existing companies offering similar services, rapid
technological change, development risks, management of growth and a minimal
previous record of operations or earnings.

In its efforts
to position the Company to raise the additional capital required to execute its
business plan, during 2006, the Company affected a significant financial
restructuring.

The board of
directors ratified a letter agreement (the Letter Agreement) on June 16, 2006
with a related party, Gryphon Opportunities Fund I, LLC (GOF) (its majority
shareholder on that date) in which GOF agreed to convert all of its outstanding
notes payable and accrued interest to common stock of the Company and GOF
agreed to release its lien on the Companys assets. Both of these actions were
conditioned upon the Company raising an aggregate of $570,000 in equity
financing.

On June 16,
2006, the Company had approximately 30 million shares of common stock
authorized remaining to be issued. To complete the equity financing and the
conversion of the GOF outstanding notes payable and accrued interest to common
stock, both at a price of approximately $.01 per common share, the
Company would have needed approximately 140 million authorized common shares.

As a result,
the Company authorized the creation of a new Mandatorially Convertible Series C
Preferred Stock (the Series C Stock) and commenced its equity financing at an
offering price of $2.72 per share of Series C Stock (approximately $.01 per
common share equivalent). Each share of Series C Stock represented 200 common
share equivalents. The Series C Stock had no conversion rights unless and until
the Company had sufficient authorized shares of common stock available to
permit the conversion of all of the shares of the Series C Stock at a rate of
200 common shares for each share of Series C Stock. The Series C Stock had no
liquidation preference, dividend rights or any other rights that were not
included in the rights of the current common stock holders.

The Company
achieved $570,000 in its equity financing on September 15, 2006 (the Commitment
Date), triggering the conversion of all of GOFs outstanding notes payable and
accrued interest, through the commitment date, of $600,967 and the release of
the GOF lien on the Companys assets.

Accordingly,
on November 13, 2006, upon filing its Certificate of Designation for the Series
C Stock with the State of Nevada, the Company immediately issued a total of
515,587 shares of Series C Stock including 251,903 shares issued in the equity
financing ($576,518 in total was raised by October 2, 2006) and 264,494 shares
issued to affect the conversion of GOFs notes and accrued interest.

18

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To further its
financial restructuring efforts, on October 19, 2006 the Company made a
conversion offer to the remaining note holders to convert the balance of $1,283,500
in notes payable and the related accrued interest of $262,917 to Series C
Stock. By December 31, 2006, the Company had received signed consents from note
holders accepting the conversion offer representing $1,020,000 in notes payable
and $208,328 in accrued interest. To affect these additional conversions the
Company issued an additional 540,605 shares of Series C Stock.

After securing
shareholder approval of a one for two hundred reverse common stock split, on
April 24, 2007, the Company amended its Articles of Incorporation with the
State of Nevada to reflect the reverse common stock split. Immediately
thereafter, the Companys 20,304,000 shares of common stock were changed into
approximately 101,520 shares of common stock and each of the Companys
1,058,835 issued and outstanding shares of Series C Stock were automatically
converted to 200 shares of the Companys common stock for an aggregate of
211,767,000 shares of common stock which were automatically converted into
approximately 1,058,835 shares of common stock. The total number of common
shares issued and outstanding immediately following the reverse stock split was
approximately 1,160,355. All share and per share amounts have been restated for
all periods presented to reflect the reverse stock split.

In June, 2007,
in accordance with the terms and conditions of the Companys original
conversion offer, dated October 19, 2006, the Company received signed consents
from additional note holders representing $244,018 in notes payable and accrued
interest. To affect these additional conversions, the Company issued 107,396
shares of common stock.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The discussion
and analysis of our financial condition and results of operations are based on
our financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States of America
(GAAP). The preparation of these financial statements requires us to make
estimates, assumptions and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses and related disclosures of
contingent assets and liabilities. On an on-going basis, we evaluate these
estimates, assumptions and judgments. We base our estimates on historical
experience and on various other assumptions that we believe are reasonable
under the circumstances, the results of which form the basis for making
judgments about the carrying values of assets and liabilities. Actual results
may materially differ from these estimates under different assumptions or
conditions. If actual results were to differ from these estimates materially,
the resulting changes could have a material adverse effect on our financial
statements. We consider the following accounting policies to be the most important
to the portrayal of our financial condition and that require the most
subjective judgment.

REVENUE RECOGNITION

The Company
derives its revenues from the following home healthcare provider sources 
recurring monthly service and maintenance fees, one-time training and set-up
fees and integration and customization services as contracted. The Company
recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104,
Revenue Recognition (SAB 104). SAB 104 generally requires that four basic criteria
must be met before revenue can be recognized: (1) persuasive evidence of an
arrangement exists; (2) delivery has occurred or services have been rendered;
(3) the fee is fixed and determinable; and (4) collectability is reasonably
assured. Determination of criteria (3) and (4) are based on managements
judgments regarding the fixed nature of the fee charged for services rendered
and the collectability of those fees. Should changes in conditions cause
management to determine these criteria are not met for certain sales, revenue
recognized for any reporting period could be adversely affected. In instances
when any one of the four criteria is not met, the Company will either defer
recognition of the monthly service fees until the criteria are met or will recognize
the recurring monthly service fees on a ratable basis. Recognition of revenue
resulting from one-time training and set up fees, which are billed upfront, is
deferred and amortized over the life of the corresponding arrangements and is
included in deferred revenue in the accompanying financial statements.

SOFTWARE AND SOFTWARE DEVELOPMENT COSTS

The Company
capitalizes costs related to computer software developed or obtained for
internal use in accordance with the American Institute of Certified Public
Accountants Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use and is depreciated
using the straight-line method over the estimated useful life of the software,
generally two years. SOP 98-1 provides guidance on determining whether computer
software is internal-use software and guidance on accounting for proceeds of
computer software originally developed or obtained for internal use and then
subsequently sold to the public. It also provides guidance on capitalization of
the costs incurred for computer software developed or obtained for internal
use.

LONG-LIVED ASSETS

Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to the undiscounted future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the net asset exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

19

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STOCK-BASED COMPENSATION

On January 1,
2006, the Company adopted the modified prospective method of SFAS No. 123
(revised 2004), Share-Based Payment (SFAS No. 123R), which is a revision of
SFAS No. 123, Accounting for Stock-Based Compensation (SFAS No. 123). SFAS
No. 123R supersedes APB Opinion No. 25, and amends SFAS No. 95, Statement of
Cash Flows. SFAS No. 123R requires that all share-based payments to employees,
including the grant of employee stock options, be recognized in the income
statement based on their fair values. Under the modified prospective
application, SFAS No. 123R is applied to new awards and awards modified,
repurchased or cancelled after the effective date. Compensation cost for the
portion of awards for which requisite service has not been rendered that are
outstanding as of the effective date is recognized as the requisite service is
rendered on or after the effective date. The Compensation cost for the portion
of awards is based on the grant date fair value of those awards, less estimated
forfeitures.

Stock-based
compensation expense recognized during the period is based on the value of the
portion of the stock-based payment awards that is ultimately expected to vest
less estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.

The Company
accounts for equity instruments issued to non-employees in accordance with the
provisions of SFAS No. 123 as amended and Emerging Issues Task Force (EITF)
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
of the fair value of the equity instrument issued is the earlier of the date on
which the counterpartys performance is complete or the date on which it is
probable that performance will occur.

Results of Operations

Year Ended December 31, 2007 Compared to Year
Ended December 31, 2006

Revenues for
the twelve months ended December 31, 2007 were $134,065 compared to $244,815
for the twelve months ended December 31, 2006. This 45% decrease in sales
reflects customer attrition after the Company implemented a staff reduction in
December 2005.

Management
believes that significant revenue growth will begin in the next twelve months
if the Company is able to raise the additional capital required to execute its
Sfax marketing and sales strategy.

Costs of
revenues were $116,094 for the twelve months ended December 31, 2007 compared
to $181,668 for the twelve months ended December 31, 2006. This 36% decrease in
cost of revenues was primarily attributable to the lower salaries and benefits
and other employee-related expenses of $10,000, lower operating lease expenses
of $33,000, resulting from the Company returning approximately $300,000 in
leased hardware and software in February, 2006 and lower depreciation expense
of $49,000. These lower expenses were partially offset by increased telecom
expenses of $26,000 resulting from the development and launch of the Companys
Sfax product offering.

Selling,
general and administrative expenses were $1,558,750 for the twelve months ended
December 31, 2007 compared to $987,077 for the twelve months ended December 31,
2006. This 58% increase in expenses was primarily attributable to the increase
in payroll and other employee-related expenses of $360,000. External consulting
and investor relations expenses increased $45,000 in 2007, primarily due to SOX
compliance consulting of $35,000. Other marketing costs, including marketing
materials, product marketing and tradeshow and press release expenses were
approximately $13,000 higher in 2007. The Company also recognized stock
compensation expense for stock options vested during 2007 due to its January 1,
2006, adoption of SFAS No. 123R using the modified prospective transition
method, which contributed to higher expenses of $165,000 in 2007. Other
corporate general and administrative expenses, including building rent,
computer and software expenses, insurance, telephone, cellular phone, office
supplies and postage expenses decreased $13,000 in 2007.

Bad debt
expense was $2,524 for the twelve months ended December 31, 2007 compared to
$44,702 for the twelve months ended December 31, 2006.

Management
expects that operating expenses will increase over the next twelve to eighteen
months if the Company is able to raise the additional capital required to make
the necessary investments in technology enhancements and in its planned
marketing, sales and support programs.

Loss on Debt Settlement, net

In 2007 there
was no loss on debt settlement.

In 2006, loss
on debt settlement, net of $120,988 reflected various lease restructurings,
completed in 2006, totaling $137,292 offset by a gain of $16,294 associated
with favorable settlement of outstanding trade payables.

20

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Loss on Early Extinguishment of Debt

Loss on early
extinguishment of debt totaled $381,358 for the twelve months ended December
31, 2007. In late June 2007, in accordance with the terms and conditions of the
Companys original conversion offer, dated October 19, 2006, to convert the
principal amounts of notes payable and accrued interest through September 15,
2006, to common stock, the Company received signed consents from additional
note holders accepting the conversion offer representing $200,000 in notes
payable and $44,018 in accrued interest. To affect these additional
conversions, the Company issued 107,396 shares of common stock. The difference
between the net carrying amount of the extinguished debt and the reacquisition
price of the extinguished debt, totaling $381,358 was recognized as a loss in
the period of extinguishment.

Loss on early
extinguishment of debt totaled $19,030,648 for the twelve months ended December
13, 2006. In the fourth quarter of 2006, the Company converted a total of
$1,564,490 in notes payable and $264,806 in related accrued interest to 805,099
shares of Series C Stock (which was subsequently automatically converted to
805,099 shares of common stock on April 25, 2007). The difference between the
carrying amount of the extinguished debt and the reacquisition price of the
extinguished debt, totaling $19,030,648, was recognized as a loss in the period
of extinguishment.

Interest
expense for the twelve months ended December 31, 2007 was $463,333 compared to
$232,500 in 2006. Higher debt discount amortization in 2007 of $364,691
resulted from the issuance of notes payable from December 2006 through December
2007. Partially offsetting these higher expenses were lower interest accruals
of $132,805 in 2007 resulting from an overall lower debt load in 2007.

Liquidity and Capital Resources

Net cash used
in operating activities for the year ended December 31, 2007 and 2006 totaled
$1,347,530 and $598,209, respectively. The increase in net cash used by
operating activities in 2007 is primarily due to the Companys investments in
additional resources, as required by its business plan to initiate growth in
its revised business model, primarily people and people-related expenses of
$360,000 and a reduction in accrued liabilities of approximately $113,924.

Cash flows
used in investing activities totaled $77,940 for the year ended December 31, 2007
and consisted of capital expenditures of $25,940 and capitalized software
development costs of $52,000.

Net cash
provided by financing activities was $1,457,000 for the year ended December 31,
2007 which consists entirely of borrowing on notes payable. Net cash provided
by financing activities was $764,019 for the year ended December 31, 2006 and
consisted of the issuance of the Companys Series C Mandatorially Convertible
Preferred Stock ($576,519) and borrowing on notes payable ($187,500).

The Company
has limited cash resources and intends to raise additional capital through the
issuance of debt or equity. The Company believes the additional capital will
allow it to continue expand the sales of its core products and develop new
product offerings. The availability of cash through such resources is not
assured and if the Company is not able to raise enough cash, the Company might
be forced to limit its operations and selling activities, or ultimately cease
operations. The financial statements for the year ended December 31, 2007 have
been prepared on the assumption that the Company will continue as a going
concern. The Company sustained net losses of $2,386,373 and $20,352,778 for the
years ended December 31, 2007 and 2006, respectively, and has accumulated
losses through December 31, 2007 of $37,804,116. Cash used in operating
activities for the same periods aggregated $1,347,530 and $598,209,
respectively. Total liabilities at December 31, 2007 of $1,721,133 exceed total
assets of $287,403. As of the date of this report, the Company is unable to
meet all of its short-term obligations because of shortages of cash. The
Companys continued existence depends upon the success of managements efforts
to raise additional capital necessary to meet the Companys obligations as they
come due, and to obtain sufficient capital to execute its business plan. The
Company intends to obtain capital primarily through issuances of debt or
equity. There can be no degree of assurance that the Company will be successful
in completing additional financing transactions. Failure to generate additional
revenues, raise additional capital or manage discretionary spending could have
a material adverse effect on the Companys ability to continue as a going
concern and to achieve its intended business objectives. The financial
statements do not include any adjustments to reflect the possible effects on
the recoverability and classification of assets or classification of
liabilities, which may result from the inability of the Company to continue as
a going concern.

Inflation

The Company
believes that inflation generally has not had a material impact on its
operations or liquidity to date.

ITEM 7. FINANCIAL STATEMENTS

The
consolidated financial statements of the Company are included herein beginning
on page F-1.

ITEM 8: CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

None.

21

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ITEM 8A. (T) CONTROLS AND PROCEDURES.

(a) Evaluation
of Disclosure Controls and Procedures

As of the end
of the period covered by this report, SecureCares management, with the
participation of Dennis Nasto, our principal executive officer, and Neil
Burley, our principal financial officer, carried out an evaluation of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of
1934). In designing and evaluating its disclosure controls and procedures,
management recognized that disclosure controls and procedures, no matter how
well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the disclosure controls and procedures are
met. Additionally, in designing disclosure controls and procedures, management
necessarily was required to apply its judgment in evaluating the cost-benefit
relationship of possible disclosure controls and procedures. The design of any
disclosure controls and procedures also is based in part upon certain
assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions. Based upon that evaluation, Messrs. Nasto and
Burley concluded that these disclosure controls and procedures were effective
as of the end of the period covered in this report.

(b)
Managements Report on Internal Control Over Financial Reporting

The Companys
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. In order to evaluate the
effectiveness of internal control over financial reporting, as required by
Section 404 of the Sarbanes-Oxley Act, management has conducted an assessment,
including testing, using the criteria in Internal
Control - Integrated Framework, issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO). The Companys
system of internal control over financial reporting is designed to provide
reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with
generally accepted accounting principles. Because of its inherent limitations,
internal control over financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of effectiveness to future
periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate. Based on its assessment, management has concluded
that the Companys internal control over financial reporting was effective as
of December 31, 2007. Managements report was not subject to attestation by the
Companys registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only managements
report in this annual report.

(c) Changes in
Internal Controls

There was no
change in internal control over financial reporting that occurred during the
fourth quarter of 2007 that has materially affected or is reasonably likely to
materially affect SecureCares internal control over financial reporting.

ITEM 8B. OTHER INFORMATION.

None.

22

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PART III

ITEM 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT.

The following
table sets forth the age and position of each of the Companys executive
officers, directors and key employees at December 31, 2007:

| |                      |  |     |  |          |                                                                                               
| | -------------------- |  | --- |  | -------- | ----------------------------------------------------------------------------------------------
| | Name                 |  | Age |  | Position
| |                      |  |     |  |         
|
| | Richard
  Corlin, MD |  | 67  |  |          | Chairman of
  the Board of Directors and Principal Medical Officer                            
| |                      |  |     |  |          |                                                                                               
| | Dennis Nasto         |  | 49  |  |          | Principal
  Executive Officer and Director                                                    
| |                      |  |     |  |          |                                                                                               
| | Allen Stamy          |  | 66  |  |          | Director                                                                                      
| |                      |  |     |  |          |                                                                                               
| | Neil Burley          |  | 47  |  |          | Vice-President
  and Principal Financial Officer                                              
| |                      |  |     |  |          |                                                                                               
| | Eugene Fry           |  | 46  |  |          | Senior
  Vice-President, Product and Technology Development and Principal Compliance
  Officer

Richard
Corlin, MD has been a director since September 23, 2000 and became Chairman of
the Board of Directors and Principal Medical Officer in August, 2002. He is a
gastroenterologist in private practice in Santa Monica, California and was
President of the American Medical Association (AMA) from July 2001 to July
2002. Prior to becoming President, Dr. Corlin served as Speaker of the AMAs
House of Delegates for five years. He has been active in the affairs of the AMA
for the past twenty years, having served for nine years as a member and then
Chair of the AMA Council on Long Range Planning and Development. From 1994 to
1998, Dr. Corlin served as a member of the Advisory Committee to the Director
of the National Institute of Health. Dr. Corlin served as President of the
California Medical Association (CMA) from 1992 to 1993, was Vice Speaker and
Speaker of the CMA House of Delegates for nine years, and a member of its Board
of Trustees for twelve years. He chaired numerous committees of the CMA
including the Finance Committee, the Liaison Committee to State Hospital
Medical Staffs, and was an active member of the CMA Speakers Bureau on Tort
Reform. Dr. Corlin is a graduate of Rutgers University, and received his M.D.
degree from Hahnemann Medical College. Following residency training at
Hahnemann, Dr. Corlin served as a Lt. Commander in the United States Public
Health Service, Heart Disease and Stroke Control Program from 1968 to 1970. He
then took a gastroenterology fellowship at UCLA. He is a fellow of the American
College of Physicians, is a member of both the American Gastroenterology
Association and the American Society of Internal Medicine, and is a Past
President of the Southern California Society of Gastrointestinal Endoscopy. He
is also the Chairman of the Audio Digest Foundation, a provider of continuing
medical education to healthcare professionals, a member of the Board of
Governors of Marathon Multimedia, a subsidiary of Audio Digest Foundation that
provides information management solutions to medical societies, Chairman of
Landes Slezak Group, a subsidiary of Audio Digest Foundation that records sound
and video of professional association meetings, and an assistant clinical
professor at the University of California-Los Angeles School of Medicine. Dr.
Corlin was Vice Chairman of American Sound and Video in 2000 when it filed a
petition for reorganization pursuant to Chapter 11 under the U.S. Bankruptcy
Code. The proceeding was converted to Chapter 7 under the U.S. Bankruptcy Code
and the company was liquidated.

Dennis Nasto
has been a director and Principal Executive Officer of the company since
November 2006 when he was rehired by the Board of Directors. Previously he was
Vice-President of Sales, Marketing and Customer Support from August, 2003
through September 2004. He became Senior Vice-President Sales and Marketing in
October 2004. Mr. Nastos original employment term with the Company ended
December 9, 2005 as a result of the Companys implementation of a significant
cost reduction program. He has over twenty (20) years of executive experience
in sales and marketing in the healthcare industry. Prior to joining the
Company, Mr. Nasto, from 2001 to 2002, was Director of Sales at ResMed
Corporation, a leading home health respiratory equipment manufacturer. Mr.
Nasto has been successful, during the past eighteen years in building
high-energy sales teams at both small and large companies including
Kimberly-Clarke Professional Healthcare, a major medical/surgical supply
manufacturer, where he was employed as District Sales Manager from 1983 to
1991, and from STERIS Corporation, a leading medical device company, where he
held positions as Vice President of Sales-Americas, Vice President National
Accounts and Vice President of Sterilization Services from 1991 to 1998. From
2000 to 2001, Mr. Nasto also served as President of X10NET, a start up venture
that focused on bringing Web-based workflow solutions to the physician
marketplace.

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Allen Stamy
has been a director since August, 2002. From February 1996 to the present, Mr.
Stamy has served as the President and Principal Operating Officer and more
recently Principal Executive Officer of Audio-Digest Foundation. He also
provides management oversight to its subsidiary, Marathon Multimedia, and to
CME Unlimited, a medical conference capture and e-commerce business. Prior to
joining Audio-Digest Foundation, Mr. Stamy worked in education and technology
industries where he has had experience in sales, product management, marketing
and general management. He previously worked for National Computer Systems from
1990 to 1995, Science Research Associates from 1988 to 1990, and IBM
Corporation from 1967 to 1988. At IBM, he managed a full product line including
new product development and distributed products through a national direct
sales force, direct response marketing and complementary third-party
distribution channels. He specialized in opening the Pacific Rim markets for
IBMs small computers and peripherals and managed the small system product
portfolio. Mr. Stamy earned a Bachelor of Business Administration from the
University of Iowa and a Masters of Business Administration from the
University of Chicago. He is a director of MedePass Inc., which provides secure
transmission of medical information, a member of the Board of Governors of
Marathon Multimedia, and a Director of Landes Slezak Group. Mr. Stamy also was
a Director of American Sound and Video from 1998 to 2000, when it filed a
petition for reorganization under the U.S. Bankruptcy Code and later was
liquidated, as described above.

Neil Burley
has served the Company as Vice-President and Principal Financial Officer since
July 2002. He originally joined the Company in October of 2001. Mr. Burley is
primarily responsible for the development of the Companys financial model,
optimization of cash flow and all aspects of finance and accounting. He is a
well-seasoned financial executive with over 20 years of experience. From June,
1982 to April, 1996 Mr. Burley worked at Pennzoil Company where he held a
variety of accounting and finance positions, including responsibility for all
internal and external (SEC) financial reporting for the Manufacturing and
Marketing Divisions. He joined Compaq Computer Corporation in April 1996, and
served as Director of Corporate Financial Planning and Analysis in his last
year there. In this role he functioned as a senior financial advisor to the
Principal Financial Officer and Corporate Controller of this Fortune 500
Company. He led a professional team in the development and preparation of
consolidated financial reports, board presentations, speech materials,
quarterly budgets, earnings targets and financial forecasts for all company
regions and business units. In May 2000, he left Compaq to accept equity
participation and a senior management role as VP Finance and Controller in the
start-up of a managed data storage services company, StorageProvider, Inc. In
this role he assumed financial leadership responsibility for the strategic
planning, staffing, budgeting, and management of the entire finance and
accounting infrastructure. Mr. Burley graduated from Louisiana State University
and is a Texas Certified Public Accountant.

Eugene Fry
joined the Company in October of 2001. He is primarily responsible for ensuring
the competitive viability of the Companys products. He has over fifteen (15)
years of information technology experience spanning across system
analysis/engineering, sales, field service and operations. From 1996 to 1999
Mr. Fry was employed by Turner Collie and Braden, a major engineering firm,
where he was responsible for designing and upgrading new technology and
ensuring that implementation was coordinated and successful throughout the
organizations multiple offices. Prior to that, from 1994 to 1996 he was
employed by Pacific Atlantic Group SA in Buenos Aires, Argentina, where he
created an infrastructure for a U.S. affiliate to distribute, market, and
manufacture a vending machine product in Argentina and other Latin American
companies. Mr. Fry holds various technical certifications and expertise in
various protocols, operating systems, and software. He holds a B. S. in
Computer Science from Almeda University and College.

The Company is
not aware of involvement in any legal proceedings by its directors or executive
officers during the past five years that are material to an evaluation of the
ability or integrity of such director or executive officer.

Compliance with Section 16(a) of The Exchange
Act.

Section 16(a)
of the Securities Exchange Act of 1934, as amended, requires that our
directors, executive officers and persons who beneficially own more than 10% of
a registered class of our equity securities to file with the SEC initial
reports of ownership and reports of changes of ownership of our common stock
and other equity securities. To our knowledge, based solely upon a review of
copies of such reports and amendments thereto furnished to us and written
representations that no other reports were required during and with respect to
the year ended December 31, 2007, all Section 16(a) filing requirements
applicable to our current officers, directors and beneficial owners of more
than 10% of our common stock were complied with except as follows: (i) Richard
Corlin, Chairman of our Board of Directors, was late filing a Form 4, (ii)
Dennis Nasto, Principal Executive Officer and a Director, was late filing a
Form 3, and (iii) Neil Burley, Principal Financial Officer, was late filing a
Form 4. Two of our beneficial owners, Joe Larter and David McCall were each
late filing a Form 3.

Code of Ethics

The Board of
Directors of the Company adopted the SecureCare Technologies, Inc. Ethics and
Business Compliance Procedures at its meeting on December 17, 2007. A copy of
this code of professional ethics is included in this annual report as Exhibit
14.1.

24

---



ITEM 10. EXECUTIVE COMPENSATION

|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                 |               |     |         |  |  |   | 
|--------------------------------------------------- |  | ------------------- | ---- | ---------------------- |  | ------- |  | ------------ | - | ---------- | ------ | ---------- | ------ | ---------- | --------------- | ------------- | --- | ------- |  |  | - | 
|                                                    |  | Annual Compensation |      | Long-Term Compensation | 
|                                                    |  |                     |      |                        | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        | Restricted |                 | Common Shares |     |         |  | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            | Other  |            | Stock  |            | Underlying      |               |     |         | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            | Annual |            | Awards |            | Options Granted |               | All |        
|                                                    |  | Year                |      | Salary                 |  | Bonus   |  | Compensation |   | (# Shares) |        | (# Shares) |        | Other      |                
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                
|Richard F. Corlin, MD (1)                           |  |                     | 2007 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Chairman and Principal Medical Officer              |  |                     | 2006 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     | 2005 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                 |               |     |         |  |  |   | 
|Allen Stamy, Director (2)                           |  |                     | 2007 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     | 2006 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     | 2005 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                 |               |     |         |  |  |   | 
|                                                   
|Dennis Nasto (3)                                    |  |                     | 2007 |                        |  | 180,000 |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Principal Executive Officer and Director            |  |                     | 2006 |                        |  | 30,000  |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     | 2005 |                        |  | 105,695 |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                 |               |     |         |  |  |   | 
|                                                   
|Neil Burley (4)                                     |  |                     | 2007 |                        |  | 175,500 |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Vice President and Principal Financial Officer      |  |                     | 2006 |                        |  | 58,667  |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     | 2005 |                        |  | 85,000  |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                 |               |     |         |  |  |   | 
|Eugene Fry (5)                                      |  |                     | 2007 |                        |  | 165,750 |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Vice-President, Product and Technology              |  |                     | 2006 |                        |  | 46,000  |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Development and Principal Compliance Officer        |  |                     | 2005 |                        |  | 75,000  |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                 |               |     |         |  |  |   | 
|Robert J. Woodrow (6)                               |  |                     | 2007 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Former President, Principal Executive Officer
  and |  |                     | 2006 |                        |  | 3,000   |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Director                                            |  |                     | 2005 |                        |  | 70,000  |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                 |               |     |         |  |  |   | 
|                                                   
|Robert McMillan, Former Director (7)                |  |                     | 2007 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     | 2006 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     | 2005 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 100,000 |  |  | 0 | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                 |               |     |         |  |  |   | 
|                                                   
|                                                    |  |                     | 2007 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Laszlo Meszaros, Former Director (8)                |  |                     | 2006 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     | 2005 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 100,000 |  |  | 0 | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                 |               |     |         |  |  |   | 
|                                                   
|William OLoughlin, Former Executive                |  |                     | 2007 |                        |  | 19,844  |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Vice-President and Chief Operating                  |  |                     | 2006 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Officer (9)                                         |  |                     | 2005 |                        |  | 100,000 |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     |      |                        |  |         |  |              |   |            |        |            |        |            |                 |               |     |         |  |  |   | 
|                                                   
|N.K. Skip Best (10)                               |  |                     | 2007 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|Former Vice-President, Business Development         |  |                     | 2006 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 
|                                                    |  |                     | 2005 |                        |  | 0       |  |              | 0 |            |        | 0          |        |            | 0               |               |     | 0       |  |  | 0 | 

|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | Dr. Corlin
  has been a director since September 23, 2000. He became Chairman of the Board
  and Principal Medical Officer in August, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(2) | Mr. Stamy
  has been a director since August 8, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(3) | Mr. Nasto
  has been a director and Principal Executive Officer since November 6, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On August
  17, 2007, Mr. Nasto was granted options to purchase 141,667 shares of common
  stock issued pursuant to the SecureCare Technologies, Inc. Year 2007 Stock
  Option Plan. These options vested immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | In 2006, Mr.
  Nasto was paid $30,000 in cash compensation from the date of his employment,
  November 6, 2006 through December 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | In addition,
  from July to October 2006, Mr. Nasto was paid $54,738 as an outside marketing
  consultant to the Company, excluding $4,285 in reimbured out of pocket
  expenses. The total paid to Mr. Nasto, of $54,738, included payment for the
  additional salary he accrued in 2005 of $20,527. Previously
  Mr. Nasto was Vice-President of Sales, Marketing and Customer Support from
  August, 2003 through September 2004. Mr. Nasto became Senior Vice-President
  Sales and Marketing in October 2004. Mr. Nastos employment with the Company
  ended December 9, 2005, as a result of the Companys implementation of a
  significant cost reduction program.
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Mr. Nasto
  received cash compensation in 2005 of $105,695 and he accrued additional
  salary of $20,572 through December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(4) | Mr. Burley
  has been Principal Financial Officer since July 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Mr. Burleys
  annual salary at 12/31/07 is $120,000. Mr. Burleys total cash compensation
  of $175,500 in 2007 included payment of $55,500 in wages accrued for but not
  paid in 2005 and 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On August
  17, 2007, Mr. Burley was granted options to purchase 141,667 shares of common
  stock issued pursuant to the SecureCare Technologies, Inc. Year 2007 Stock
  Option Plan. These options vested immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Mr. Burley
  received cash compensation in 2006 of $58,667 and he accrued additional
  salary of $43,000 through December 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Mr. Burley
  received cash compensation in 2005 of $85,000 and he accrued additional
  salary of $10,366 through December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|(5) | Mr. Fry has
  been a full time employee of the Company since October 2001.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Mr. Frys
  annual salary at 12/31/07 is $102,000. Mr. Frys total cash compensation of
  $165,750 in 2007 included payment of $63,750 in wages accrued for but not
  paid in 2005 and 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | On August
  17, 2007, Mr. Fry was granted options to purchase 70,833 shares of common
  stock issued pursuant to the SecureCare Technologies, Inc. Year 2007 Stock
  Option Plan. These options vested immediately.                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Mr. Fry
  received cash compensation in 2006 of $46,000 and he accrued additional
  salary of $45,000 through December 31, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|    | Mr. Fry
  received cash compensation in 2005 of $75,000 and he accrued additional
  salary of $15,416 through December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            

25

---



|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|---- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(6)  | Effective
  June 16, 2006, the Board of Directors accepted Mr. Woodrows resignation as a
  member of the Board of Directors and as President and Principal Executive
  Officer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | Mr.
  Woodrows net compensation in 2005 of $55,700 included $70,000 in monthly
  payments that averaged $7,500 per month for the months in which he was paid
  net of $14,300 in unreimbursed out of pocket expenses. Mr. Woodrow also
  accrued additional salary of $20,000 through December 31, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | Mr. Woodrow
  received cash compensation in 2006 of $3,000 and he accrued additional salary
  of $37,500 through June 16, 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(7)  | Robert
  McMillan joined the Board of Directors on April 25, 2005. The Board granted
  Mr. McMillan options to purchase 100,000 shares of common stock upon
  appointment as director. 50,000 options vested immediately; the remaining
  vested ratably over the following 12 months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | Mr. McMillan
  resigned from the Board of Directors on March 1, 2006. Therefore, 96,747 of
  these options had vested on the date of his resignation; the remaining 3,253
  were cancelled. As of June 2006 the 96,747 vested options were cancelled.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(8)  | Laszlo
  Mezaros joined the Board of Directors on April 25, 2005. On January 11, 2006,
  Mr. Meszaros notified the Company that he resigned from the Board of
  Directors effective December 14, 2005. The Board granted Mr. Mezaros options
  to purchase 100,000 shares of common stock upon appointment as director.
  50,000 options vested immediately; the remaining were to vest ratably over
  the following 12 months.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | Mr. Mezaros
  resigned as a director of the Company on December 14, 2005. 81,918 options
  had vested at the date of resignation; the remaining 18,082 were cancelled.
  As of March 2006 the 81,918 vested options were cancelled.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(9)  | Mr.
  OLoughlin was Executive Vice-President and Chief Operating officer from
  October 1, 2004 through December 9, 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | Mr.
  OLoughlins employment with the Company ended December 9, 2005, as a result
  of the Companys implementation of a significant cost reduction program.
  Prior to October 1, 2004, Mr. OLoughlin was retained on a consulting basis
  and was compensated $10,000 for those consulting services.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | Mr.
  OLoughlin received cash compensation in 2005 of $100,000 and he accrued
  additional salary of $20,000 through December 31, 2005. Pursuant to
  a wage claim filed by Mr. OLoughlin with the Texas Workforce Commission in
  January, 2006 claiming his accrued salary of $20,000 through December 31,
  2005, the Company paid the wages owed, totaling $19,844, in January, 2007.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|(10) | Mr. Best was
  hired as Vice President of Business Development on March 1, 2004. 50,000
  shares of Common Stock were awarded to Mr. Best by the Board of Directors on
  January 20, 2004. These shares vested on October 1, 2004 and their issuance
  was contingent upon Mr. Best being employed with the Company on October 1,
  2004. Mr. Bests employment with the Company ended on September 7, 2004;
  therefore the shares were not issued.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|     |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|     | On April 7,
  2005 a lawsuit was filed by Mr. Best against the Company. The lawsuit was
  identified as cause number GN501073 and was filed in the 353rd Judicial
  District Court of Travis County, Texas as Norman K. Best versus SecureCARE
  Technologies, Inc. The lawsuit alleged that the Company breached the terms
  of its agreements with Mr. Best by failing to tender the 50,000 shares of
  common stock of the Company which were granted to him in January, 2004. The
  grant date fair value of the shares was not material. The Company responded
  to the lawsuit by filing a general denial, denying all the allegations raised
  by the Plaintiff. On July 8, 2005, the Company filed a series of responses to
  the Plaintiffs request for admission. The Company was intially required to
  produce all documents related to the Plaintiffs request for production by
  August 14, 2006. On August 25, 2006, the Company settled this lawuit with Mr.
  Best. The Company agreed to tender the 50,000 shares of the Companys common
  stock that were previously granted to him. The Company also agreed to a
  monetary payment of $10,000 to be paid in five monthly installments of $2,000
  each. At December 31, 2007, the Company had completed all required monetary
  payments to Mr. Best.

26

---



ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT

The following
table sets forth certain information regarding the beneficial ownership of the
Companys common stock as of December 31, 2007 by (I) each of our Directors,
(ii) each of our Executive Officers, (iii) each person who is known by us to
own beneficially more than 5% of the common stock and (iv) all Directors and
Officers as a group.

|                                        |  |                  |         |            |  |    |  
|--------------------------------------- |  | ---------------- | ------- | ---------- |  | -- | -
|Name                                    |  | Number of Shares |         | Percentage | 
|                                        |  |                  |         |            | 
|Richard F.
  Corlin, MD                 |  |                  | 5,216   |            |  | 0  | %
|Allen Stamy                             |  |                  | 500     |            |  | 0  | %
|Dennis Nasto                            |  |                  | 750     |            |  | 0  | %
|Neil Burley                             |  |                  | 1,075   |            |  | 0  | %
|Gene Fry                                |  |                  | 1,000   |            |  | 0  | %
|Joe Larter                              |  |                  | 322,607 |            |  | 19 | %
|David McCall                            |  |                  | 191,768 |            |  | 12 | %
|Kurt Gubler                             |  |                  | 93,516  |            |  | 6  | %
|Michael
  Benton                        |  |                  | 143,250 |            |  | 9  | %
|Ian McIntyre                            |  |                  | 90,754  |            |  | 5  | %
|All
  Directors and Officers as a Group |  |                  | 8,541   |            |  | 1  | %

27

---



ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS

At December
31, 2007, the Company had principal amounts of $729,500 in notes payable to the
following related parties, who own 5% or greater of the Companys outstanding
common stock as of December 31, 2007:

| |                                                                                                                                                                                                                                                                                              
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Joseph
  Larter - $213,500. This includes $83,500 owed to the Joseph Trust, of which
  Joseph Larter is a Trustee, $80,000 owed to the  Marldene Directors Pension Scheme of which Joseph Larter is a
  Trustee, and $50,000 owed to Marldene Limited of which Joseph Larter is a
  Trustee.
| |                                                                                                                                                                                                                                                                                              
| | David McCall
  - $218,000.                                                                                                                                                                                                                                                                   
| |                                                                                                                                                                                                                                                                                              
| | Michael
  Benton - $124,500. This includes $15,000 that is owed directly to Mr. Benton
  and $109,500 that is owed to the Benton Investment Company of which Michael
  Benton is the owner.                                                                                                  
| |                                                                                                                                                                                                                                                                                              
| | Kurt Gubler
  - $108,500.                                                                                                                                                                                                                                                                    
| |                                                                                                                                                                                                                                                                                              
| | Ian McIntyre
  - $65,000.                                                                                                                                                                                                                                                                    

The
indebtedness to related parties was incurred as set forth below.

For the year
ended December 31, 2007, the Company issued $359,000 in 6% notes payable
initially due December 31, 2008 and 143,600 shares of common stock, in accordance
with the terms and conditions of the Financing approved by the Board of
Directors in June of 2007, to related parties as follows:

| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | $40,000 in
  6% notes payable, initially due December 31, 2008, and 16,000 shares of
  common stock to SLT and Joe and Betty Larter being the current trustees of
  the Marldene Directors Pension Scheme;
| |                                                                                                                                                                                                            
| | $50,000 in
  6% notes payable, initially due December 31, 2008, and 20,000 shares of
  common stock to Marldene Limited, of which Joseph Larter is a director;                                             
| |                                                                                                                                                                                                            
| | $109,500 in
  6% notes payable, initially due December 31, 2008 and 43,800 shares of common
  stock to the Benton Investment Company, of which Michael Benton is the owner.                                
| |                                                                                                                                                                                                            
| | $109,500 in
  6% notes payable, initially due December 31, 2008 and 43,800 shares of common
  stock to David McCall.                                                                                       
| |                                                                                                                                                                                                            
| | $50,000 in
  6% notes payable, initially due December 31, 2008 and 20,000 shares of common
  stock to Ian McIntyre.                                                                                        

For the year
ended December 31, 2007, the Company issued notes payable and common stock
purchase warrants in accordance with the terms and conditions of the December,
2006 Financing approved by the Board of Directors, to related parties as
follows:

| |                                                                                                                                                                                                                        
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | $298,000 in
  two year Convertible Notes Payable, 6% Interest, Convertible at $2.50 per
  share with attached 119,200 common stock purchase warrants, of five year
  life, to purchase common stock at $5.00 per share:
| |                                                                                                                                                                                                                        
| | $27,500 in
  convertible notes payable and 11,000 common stock purchase warrants to SLT
  and Joe and Betty Larter being the current trustees of the Marldene Directors
  Pension Scheme;                             
| |                                                                                                                                                                                                                        
| | $83,500 in
  convertible notes payable and 33,400 common stock purchase warrants to The
  Joseph Trust, of which Joseph Larter is a Trustee;                                                                           
| |                                                                                                                                                                                                                        
| | $93,500 in
  convertible notes payable and 37,400 common stock purchase warrants to David
  McCall;                                                                                                                    
| |                                                                                                                                                                                                                        
| | $93,500 in
  convertible notes payable and 37,400 common stock purchase warrants to Kurt
  Gubler.                                                                                                                     

In December,
  2007 the Company paid interest of $8,115 to related parties on the portion of
  its Bridge IV Financing notes payable that require semi-annual interest
  payments.

In addition,
on December 14, 2007, the Company was invoiced a total of $16,454 by Marldene
Limited, of which Joseph Larter, a related party, is a director. The invoice
represents out of pocket expenses incurred by Mr. Larter on behalf of the
Company, primarily travel expenses associated with his attendance at various
company and management meetings.

In its efforts
to position the Company to raise the additional capital required to execute its
business plan, during 2006, the Company affected a significant financial
restructuring.

28

---



The board of
directors ratified a letter agreement (the Letter Agreement) on June 16, 2006
with a related party, Gryphon Opportunities Fund I, LLC (GOF) (its majority
shareholder on that date) in which GOF agreed to convert all of its outstanding
notes payable and accrued interest to common stock of the Company and GOF
agreed to release its lien on the Companys assets. Both of these actions were
conditioned upon the Company raising an aggregate of $570,000 in equity
financing.

On June 16,
2006, the Company had approximately 30 million shares of common stock
authorized remaining to be issued. To complete the equity financing and the
conversion of the GOF outstanding notes payable and accrued interest to common
stock, both at a price of approximately $.01 per common share, the
Company would have needed approximately 140 million authorized common shares.

As a result,
the Company authorized the creation of a new Mandatorially Convertible Series C
Preferred Stock (the Series C Stock) and commenced its equity financing at an
offering price of $2.72 per share of Series C Stock (approximately $.01 per
common share equivalent). Each share of Series C Stock represented 200 common
share equivalents. The Series C Stock had no conversion rights unless and until
the Company had sufficient authorized shares of common stock available to
permit the conversion of all of the shares of the Series C Stock at a rate of
200 common shares for each share of Series C Stock. The Series C Stock had no
liquidation preference, dividend rights or any other rights that were not
included in the rights of the current common stock holders.

The Company
achieved $570,000 in its equity financing on September 15, 2006 (the Commitment
Date), triggering the conversion of all of GOFs outstanding notes payable and
accrued interest, through the commitment date, of $600,967 and the release of
the GOF lien on the Companys assets.

Accordingly,
on November 13, 2006, upon filing its Certificate of Designation for the Series
C Stock with the State of Nevada, the Company immediately issued a total of
515,587 shares of Series C Stock including 251,903 shares issued in the equity
financing ($576,518 in total was raised by October 2, 2006) and 264,494 shares
issued to affect the conversion of GOFs notes and accrued interest.

ITEM 13. PRINCIPAL ACCOUNTANT FEES AND
SERVICES

The Board of
Directors has reviewed the following audit fees the Company has paid to the
independent public accountants for purposes of considering whether such fees
are compatible with maintaining the auditors independence. The policy of the
Board of Directors is to pre-approve all audit services performed by its
independent public accountants before the services are performed.

Audit Fees. Estimated fees
billed for service rendered by KBA Group LLP for the reviews of Forms 10-QSB
and for the audits of the financial statements of the Company were $71,205 for
2007 and $66,205 for 2006. Fees billed for tax related services were $14,500 in
2007 and $500 in 2006. Additionally, fees billed for other services in 2007
totaled $5,000 and $1,000 for 2006.

29

---



PART IV

ITEM 14. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

The following
Exhibits are incorporated by reference to the filing or are included following
the Index to Exhibits.

| |        |  |                                                                                                                 
| | ------ |  | ----------------------------------------------------------------------------------------------------------------
| | Number |  | Description                                                                                                     
| |        |  |                                                                                                                 
| |        |  |                                                                                                                 
| | 3.1    |  | Articles of Incorporation of the Company
 (1)                                                                   
| |        |  |                                                                                                                 
| | 3.2    |  | Articles of Amendment to Articles of
 Incorporation (1)                                                         
| |        |  |                                                                                                                 
| | 3.3    |  | Bylaws of Company (1)                                                                                           
| |        |  |                                                                                                                 
| | 3.4    |  | Definitive Proxy Statement Dated February
 28, 2007 (2)                                                         
| |        |  |                                                                                                                 
| | 3.5    |  | Articles of Amendment to the Articles of
 Incorporation filed with the State of Nevada on February 25, 2004. (3)
| |        |  |                                                                                                                 
| | 3.6    |  | Articles of Amendment to the Articles of
 Incorporation filed with the State of Nevada on April 24, 2007. (4)   
| |        |  |                                                                                                                 
| | 4.1    |  | Form of 6% Promissory note, initially due
 December 31, 2008                                                    
| |        |  |                                                                                                                 
| | 4.2    |  | Form of 6%, 6 month, Promissory note                                                                            
| |        |  |                                                                                                                 
| | 10.1   |  | SecureCare Technologies, Inc. year 2007
 Stock Option Plan.                                                     
| |        |  |                                                                                                                 
| | 14.1   |  | SecureCare Technologies, Inc. Ethics
 Policy, as adopted December 17, 2007.                                     
| |        |  |                                                                                                                 
| | 31.1   |  | Certification by Principal Executive
 Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002         
| |        |  |                                                                                                                 
| | 31.2   |  | Certification by Principal Financial
 Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002         
| |        |  |                                                                                                                 
| | 32     |  | Certification of Principal Executive
 Officer and Principal Financial Officer pursuant to 18 U.S.C Section 1350 

(1)
Incorporated by reference to the Companys original registration statement on
Form 10-SB, filed with the Securities Exchange Commission on January 11, 1999,
File No. 0-29804.

(2)
Incorporated by reference to the Companys Definitive Proxy Statement filed
with the Securities and Exchange Commission on February 28, 2007, File No.
0-29804.

(3)
Incorporated by reference to the Companys Annual Report 10-KSB for the
year-ended December 31 ,2003.

(4)
Incorporated by reference to the Companys Form 8-K filed with the Securities
and Exchange Commission on April 25, 2007, file number 0-29804.

B. Reports on
Form 8-K

| |                                                                                                                                                                                                                                                                                                                                                                                                  
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On November
 2, 2007 the Company filed a Form 8-K, dated October 29, 2007 reporting under
 item 7.01 (Regulation FD) that the Company had prepared a corporate profile
 to be utilized by the Company in an investor relation context. The Company
 reported under item 8.01 that it had issued a press release on October 29,
 2007, a copy of which was included as an exhibit to the Form 8-K.

30

---



SIGNATURES

In accordance with Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

SecureCare Technologies,
Inc.

|                      |                                         
|--------------------- | ----------------------------------------
|Date:  March 27, 2008 | By: /s/ Dennis Nasto                    
|                      |                                         
|                      | Dennis Nasto                            
|                      | Principal Executive Officer and Director

Pursuant to the requirements of the
Securities Exchange Act of 1934, as amended, this Report has been signed below
by the following persons on behalf of the registrant and in the capacities and
on the dates indicated.

|     |              |       |                             |                      
|---- | ------------ | ----- | --------------------------- | ---------------------
|NAME |              | TITLE |                            
|/s/  | Dennis Nasto |       | Principal Executive         | Date:  March 27, 2008
|     |              |       | Officer and Director        |                      
|     | Dennis Nasto |       |                             |                      
|     |              |       |                             |                      
|/s/  | Neil Burley  |       | Principal Financial Officer | Date:  March 27, 2008
|     |              |       | (Principal Financial and    |                      
|     | Neil Burley  |       | Accounting
 Officer)        |                      

31

---



SecureCare Technologies, Inc.

INDEX TO FINANCIAL STATEMENTS

|                                                                                               |  |     
|---------------------------------------------------------------------------------------------- |  | ----
|                                                                                               |  | Page
|                                                                                               |  |     
|                                                                                               |  |     
|REPORT OF
 INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM                                       |  | F-2 
|                                                                                               |  |     
|FINANCIAL
 STATEMENTS                                                                          |  |     
|                                                                                               |  |     
|Balance Sheets
 at December 31, 2007 and 2006                                                  |  | F-3 
|                                                                                               |  |     
|Statements of
 Operations for the years ended December 31, 2007 and 2006                       |  | F-5 
|                                                                                               |  |     
|Statement of
 Changes in Shareholders Deficit for the years ended December 31, 2007 and
 2006 |  | F-6 
|                                                                                               |  |     
|Statements of
 Cash Flows for the years ended December 31, 2007 and 2006                       |  | F-8 
|                                                                                               |  |     
|Notes to
 Financial Statements                                                                 |  | F-10

F-1

---



REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

TO THE BOARD OF DIRECTORS AND SHAREHOLDERS OF

SecureCare Technologies, Inc.

We have
audited the accompanying balance sheets of SecureCare Technologies, Inc. as of
December 31, 2007 and 2006 and the related statements of operations, changes in
shareholders deficit, and cash flows for the years then ended. These financial
statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted
our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the companys internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of SecureCare Technologies, Inc. as
of December 31, 2007 and 2006, and the results of its operations and its cash
flows for the years then ended, in conformity with accounting principles
generally accepted in the United States of America.

As described
in Note A, the accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has experienced
recurring losses, has generated recurring negative cash flows from operations
and has liabilities significantly in excess of assets at December 31, 2007.
These conditions raise substantial doubt about the Companys ability to
continue as a going concern. Managements plan with regard to these matters is
also described in Note A. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.

As discussed
in Note A to the financial statements, effective January 1, 2006, the Company
adopted Statement of Financial Accounting Standards No. 123 (R), Share-Based
Payment.

KBA Group LLP 
Dallas, Texas 
March 27, 2008

F-2

---



SecureCare Technologies, Inc. BALANCE SHEETS 
December 31, 2007 and 2006

ASSETS

|                                                                               |  |      |         |      |   |         | 
|------------------------------------------------------------------------------ |  | ---- | ------- | ---- | - | ------- | 
|                                                                               |  | 2007 |         | 2006 |  
|                                                                               |  |      |         |      |  
|Current assets                                                                 |  |      |         |      |   |         | 
|Cash and cash equivalents                                                      |  | $    | 161,680 |      | $ | 130,150 | 
|Accounts receivable - trade, net of
 allowance for doubtful accounts of $2,000 |  |      | 19,569  |      |   | 16,076  | 
|Prepaid expenses                                                               |  |      | 18,105  |      |   | 7,935   | 
|                                                                               |  |      |         |      |   |         | 
|Total current assets                                                           |  |      | 199,354 |      |   | 154,161 | 
|                                                                               |  |      |         |      |   |         | 
|Property and equipment, net                                                    |  |      | 88,049  |      |   | 45,276  | 
|                                                                               |  |      |         |      |   |         | 
|                                                                              
|Total assets                                                                   |  | $    | 287,403 |      | $ | 199,437 | 
|                                                                               |  |      |         |      |   |         | 

The accompanying notes are an integral part
of these financial statements.

F-3

---



|                                     
|-------------------------------------
|SecureCare Technologies, Inc.        
|BALANCE SHEETS - CONTINUED           
|December 31, 2007 and 2006           
|                                     
|LIABILITIES AND SHAREHOLDERS DEFICIT

|                                                                                                                                                           |  |      |             |      |   |             |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ----------- | ---- | - | ----------- | -
|                                                                                                                                                           |  | 2007 |             | 2006 |  
|                                                                                                                                                           |  |      |             |      |  
|Current liabilities                                                                                                                                        |  |      |             |      |   |             |  
|Current portion of notes payable, including
$431,500 and $0 to related
  parties, respectively, net of debt discount of $400,633 and $0, respectively      |  | $    | 856,867     |      | $ | 263,500     |  
|Accounts payable - trade                                                                                                                                   |  |      | 213,175     |      |   | 220,789     |  
|Accrued payroll                                                                                                                                            |  |      | 101,417     |      |   | 209,372     |  
|Accrued payroll taxes                                                                                                                                      |  |      | 125,517     |      |   | 273,942     |  
|Accrued interest, including $29,091 to related
parties at December 31,
  2007                                                                              |  |      | 60,012      |      |   | 64,715      |  
|Other accrued liabilities                                                                                                                                  |  |      | 30,592      |      |   | 51,937      |  
|                                                                                                                                                           |  |      |             |      |   |             |  
|Total current liabilities                                                                                                                                  |  |      | 1,387,578   |      |   | 1,084,255   |  
|                                                                                                                                                           |  |      |             |      |   |             |  
|Notes payable (including $298,000 and $42,500 to related parties),
less
  current portion and net of debt discount of $264,382 and $183,458
  respectively |  |      | 186,118     |      |   | 4,042       |  
|                                                                                                                                                           |  |      |             |      |   |             |  
|Non-current accrued payroll
  taxes and penalties and interest                                                                                             |  |      | 147,437     |      |   | 3,992       |  
|                                                                                                                                                           |  |      |             |      |   |             |  
|Other non-current
  liabilities                                                                                                                            |  |      |            |      |   | 30,343      |  
|                                                                                                                                                           |  |      |             |      |   |             |  
|Total Liabilities                                                                                                                                          |  |      | 1,721,133   |      |   | 1,122,632   |  
|                                                                                                                                                           |  |      |             |      |   |             |  
|                                                                                                                                                           |  |      |             |      |   |             |  
|Shareholders deficit                                                                                                                                      |  |      |             |      |   |             |  
|Preferred stock - $0.001
par value; 15,000,000
  shares authorized,                                                                                        |  |      |             |      |   |             |  
|Series A
preferred stock - 1,875,000 and 1,955,000 shares
  issued and outstanding, respectively (liquidation preference of $1.00 per
  share)             |  |      | 1,875       |      |   | 1,955       |  
|Series B preferred stock - 1,336,364 and 1,427,273
shares issued and
  outstanding, respectively (liquidation preference of $1.10 per share)               |  |      | 1,336       |      |   | 1,427       |  
|Series C preferred stock - 1,058,835 shares issued
and outstanding (no
  liquidation preference) at December 31, 2006                                      |  |      |            |      |   | 1,059       |  
|Common stock - $0.001 par value; 50,000,000 shares
  authorized, 1,658,706 and 101,520 shares issued and outstanding, respectively                         |  |      | 1,659       |      |   | 102         |  
|Additional paid-in capital                                                                                                                                 |  |      | 36,365,516  |      |   | 34,490,006  |  
|Accumulated deficit                                                                                                                                        |  |      | (37,804,116 | )    |   | (35,417,744 | )
|                                                                                                                                                           |  |      |             |      |   |             |  
|Total shareholders deficit                                                                                                                                |  |      | (1,433,730  | )    |   | (923,195    | )
|                                                                                                                                                           |  |      |             |      |   |             |  
|                                                                                                                                                           |  |      |             |      |   |             |  
|Total liabilities and
  shareholders deficit                                                                                                              |  | $    | 287,403     |      | $ | 199,437     |  
|                                                                                                                                                           |  |      |             |      |   |             |  

The
accompanying notes are an integral part of these financial statements.

F-4

---



|                                                
|------------------------------------------------
|SecureCare Technologies, Inc.                   
|STATEMENTS OF OPERATIONS                        
|For the Years Ended December 31, 2007 and
  2006

|                                                                                    |  |      |            |      |   |             |  
|----------------------------------------------------------------------------------- |  | ---- | ---------- | ---- | - | ----------- | -
|                                                                                    |  | 2007 |            | 2006 |  
|                                                                                    |  |      |            |      |  
|Revenues                                                                            |  | $    | 134,065    |      | $ | 244,815     |  
|                                                                                    |  |      |            |      |   |             |  
|Operating expenses                                                                  |  |      |            |      |   |             |  
|Cost of revenues                                                                    |  |      | 116,094    |      |   | 181,668     |  
|Selling, general and administrative                                                 |  |      | 1,558,750  |      |   | 987,077     |  
|Bad debt expense                                                                    |  |      | 2,524      |      |   | 44,702      |  
|Loss on debt settlement, net                                                        |  |      |           |      |   | 120,998     |  
|Loss on early extinguishment of debt                                                |  |      | 381,358    |      |   | 19,030,648  |  
|                                                                                    |  |      |            |      |   |             |  
|                                                                                   
|Operating loss                                                                      |  |      | (1,924,661 | )    |   | (20,120,278 | )
|                                                                                    |  |      |            |      |   |             |  
|Other expenses                                                                      |  |      |            |      |   |             |  
|Other income                                                                        |  |      | 1,621      |      |   |            |  
|Interest expense (including $29,091 and $23,185 to
related parties,
  respectively) |  |      | (463,333   | )    |   | (232,500    | )
|                                                                                    |  |      |            |      |   |             |  
|                                                                                   
|Net loss                                                                            |  | $    | (2,386,373 | )    | $ | (20,352,778 | )
|                                                                                    |  |      |            |      |   |             |  
|Deemed dividend upon
  issuance of convertible preferred stock                      |  |      | (393,080   | )    |   | (183,438    | )
|                                                                                    |  |      |            |      |   |             |  
|Net loss attributable to
  common shareholders                                      |  | $    | (2,779,453 | )    | $ | (20,536,216 | )
|                                                                                    |  |      |            |      |   |             |  
|Net loss per common share -
  basic and diluted                                     |  | $    | (2.72      | )    | $ | (202.48     | )
|                                                                                    |  |      |            |      |   |             |  
|Weighted-average number of common shares
outstanding - basic and
  diluted          |  |      | 1,020,836  |      |   | 101,425     |  
|                                                                                    |  |      |            |      |   |             |  

The
accompanying notes are an integral part of these financial statements.

F-5

---



SecureCare Technologies, Inc.STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIT 
For the Years Ended December 31, 2007 and 2006

|                                                                                                                  |  |                 |           |                 |   |                 |   |              |           |        |   |        |   |        |            |        |   |        |   |  |           |  |   |       |  
|----------------------------------------------------------------------------------------------------------------- |  | --------------- | --------- | --------------- | - | --------------- | - | ------------ | --------- | ------ | - | ------ | - | ------ | ---------- | ------ | - | ------ | - |  | --------- |  | - | ----- | -
|                                                                                                                  |  | Series A        |           | Series B        |   | Series C        |   |              |          
|                                                                                                                  |  |                 |           |                 |   |                 |   |              |          
|                                                                                                                  |  | Preferred Stock |           | Preferred Stock |   | Preferred Stock |   | Common Stock |          
|                                                                                                                  |  |                 |           |                 |   |                 |   |              |          
|                                                                                                                  |  | Shares          |           | Amount          |   | Shares          |   | Amount       |           | Shares |   | Amount |   | Shares |            | Amount |  
|                                                                                                                  |  |                 |           |                 |   |                 |   |              |           |        |   |        |   |        |            |        |  
|Balance at December 31, 2005                                                                                      |  |                 | 1,955,000 |                 |   | 1,955           |   |              | 1,427,273 |        |   | 1,427  |   |        |           |        |   |       |   |  | 100,020   |  |   | 100   |  
|                                                                                                                  |  |                 |           |                 |   |                 |   |              |           |        |   |        |   |        |            |        |   |        |   |  |           |  |   |       |  
|Issuance of Series C preferred
  stock                                                                            |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        | 253,736    |        |   | 254    |   |  |          |  |   |      |  
|Issuance of Series C preferred
  stock in conjunction with the conversion of notes payable and accrued
  interest |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        | 805,099    |        |   | 805    |   |  |          |  |   |      |  
|Issuance of common stock for
  services                                                                           |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  | 1,500     |  |   | 2     |  
|Issuance of warrants in connection
  with notes payable                                                           |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  |          |  |   |      |  
|Beneficial conversion feature of
  convertible notes payable                                                      |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  |          |  |   |      |  
|Stock compensation expense                                                                                        |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  |          |  |   |      |  
|Reclassification of notes payable                                                                                 |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  |          |  |   |      |  
|Notes receivable write off                                                                                        |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  |          |  |   |      |  
|Net loss for the year                                                                                             |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  |          |  |   |      |  
|                                                                                                                  |  |                 |           |                 |   |                 |   |              |           |        |   |        |   |        |            |        |   |        |   |  |           |  |   |       |  
|                                                                                                                  |  |                 |           |                 |   |                 |   |              |           |        |   |        |   |        |            |        |   |        |   |  |           |  |   |       |  
|Balance at December 31, 2006                                                                                      |  |                 | 1,955,000 |                 | $ | 1,955           |   |              | 1,427,273 |        | $ | 1,427  |   |        | 1,058,835  |        | $ | 1,059  |   |  | 101,520   |  | $ | 102   |  
|                                                                                                                  |  |                 |           |                 |   |                 |   |              |           |        |   |        |   |        |            |        |   |        |   |  |           |  |   |       |  
|Conversion of Series A preferred
  stock to common stock                                                          |  |                 | (80,000   | )               |   | (80             | ) |              |          |        |   |       |   |        |           |        |   |       |   |  | 400       |  |   | (0    | )
|Conversion of Series B preferred
  stock to common stock                                                          |  |                 |          |                 |   |                |   |              | (90,909   | )      |   | (91    | ) |        |           |        |   |       |   |  | 455       |  |   | (0    | )
|Mandatory conversion of Series C
  preferred stock to common stock                                                |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        | (1,058,835 | )      |   | (1,059 | ) |  | 1,058,835 |  |   | 1,059 |  
|Issuance of common stock in
  connection with the extinguishment of notes payable and accrued interest            |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  | 107,396   |  |   | 107   |  
|Issuance of common stock for
  services                                                                           |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  | 7,500     |  |   | 8     |  
|Issuance of common stock in
  connection with the issuance of notes payable                                       |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  | 382,600   |  |   | 383   |  
|Stock compensation expense                                                                                        |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  |          |  |   |      |  
|Beneficial conversion feature of
  convertible notes payable                                                      |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  |          |  |   |      |  
|Issuance of warrants in connection
  with notes payable                                                           |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  |          |  |   |      |  
|Net loss for the year                                                                                             |  |                 |          |                 |   |                |   |              |          |        |   |       |   |        |           |        |   |       |   |  |          |  |   |      |  
|                                                                                                                  |  |                 |           |                 |   |                 |   |              |           |        |   |        |   |        |            |        |   |        |   |  |           |  |   |       |  
|                                                                                                                  |  |                 |           |                 |   |                 |   |              |           |        |   |        |   |        |            |        |   |        |   |  |           |  |   |       |  
|Balance at December 31, 2007                                                                                      |  |                 | 1,875,000 |                 | $ | 1,875           |   |              | 1,336,364 |        | $ | 1,336  |   |        |           |        | $ |       |   |  | 1,658,706 |  | $ | 1,659 |  
|                                                                                                                  |  |                 |           |                 |   |                 |   |              |           |        |   |        |   |        |            |        |   |        |   |  |           |  |   |       |  

The
accompanying notes are an integral part of these financial statements.

F-6

---



SecureCare Technologies, Inc.
STATEMENTS OF CHANGES IN SHAREHOLDERS DEFICIT - CONTINUED 
For the Years Ended December 31, 2007 and 2006

|                                                                                                                  |  |                                |            |                       |   |                    |   |       |        |   |   |             |  
|----------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ---------- | --------------------- | - | ------------------ | - | ----- | ------ | - | - | ----------- | -
|                                                                                                                  |  | Additional
  Paid-in
  Capital |            | Accumulated
  Deficit |   | Notes
  Receivable |   | Total |       
|                                                                                                                  |  |                                |            |                       |   |                    |   |       |       
|Balance
  at December 31, 2005                                                                                    |  |                                | 12,650,972 |                       |   | (15,062,966        | ) |       | (2,000 | ) |   | (2,410,810  | )
|                                                                                                                 
|Issuance of Series C preferred
  stock                                                                            |  |                                | 576,264    |                       |   |                   |   |       |       |   |   | 576,519     |  
|Issuance of Series C preferred
  stock in conjunction with the conversion of notes payable and accrued
  interest |  |                                | 20,893,738 |                       |   |                   |   |       |       |   |   | 20,894,543  |  
|Issuance of common stock for
  services                                                                           |  |                                | 74,700     |                       |   |                   |   |       |       |   |   | 75,000      |  
|Issuance of warrants in connection
  with notes payable                                                           |  |                                | 171,784    |                       |   |                   |   |       |       |   |   | 171,784     |  
|Beneficial conversion feature of
  convertible notes payable                                                      |  |                                | 18,844     |                       |   |                   |   |       |       |   |   | 18,844      |  
|Stock compensation expense                                                                                        |  |                                | 153,704    |                       |   |                   |   |       |       |   |   | 153,704     |  
|Reclassification of note payable                                                                                  |  |                                | (50,000    | )                     |   |                   |   |       |       |   |   | (50,000     | )
|Notes receivable write off                                                                                        |  |                                |            |                       |   | (2,000             | ) |       | 2,000  |   |   |            |  
|Net loss for the year                                                                                             |  |                                |           |                       |   | (20,352,778        | ) |       |       |   |   | (20,352,778 | )
|                                                                                                                  |  |                                |            |                       |   |                    |   |       |        |   |   |             |  
|Balance at December 31, 2006                                                                                      |  | $                              | 34,490,006 |                       | $ | (35,417,744        | ) | $     |       |   | $ | (923,194    | )
|                                                                                                                 
|Conversion of Series A preferred
  stock to common stock                                                          |  |                                | 80         |                       |   |                   |   |       |       |   |   |            |  
|Conversion of Series B preferred
  stock to common stock                                                          |  |                                | 90         |                       |   |                   |   |       |       |   |   |            |  
|Mandatory conversion of Series C
  preferred stock to common stock                                                |  |                                |           |                       |   |                   |   |       |       |   |   |            |  
|Issuance of common stock in
  connection with the extinguishment of notes payable and accrued interest            |  |                                | 644,269    |                       |   |                   |   |       |       |   |   | 644,376     |  
|Issuance of common stock for
  services                                                                           |  |                                | 44,993     |                       |   |                   |   |       |       |   |   | 45,000      |  
|Issuance of common stock in
  connection with the issuance of notes payable                                       |  |                                | 416,700    |                       |   |                   |   |       |       |   |   | 417,083     |  
|Stock compensation expense                                                                                        |  |                                | 318,878    |                       |   |                   |   |       |       |   |   | 318,878     |  
|Beneficial conversion feature of
  convertible notes payable                                                      |  |                                | 106,396    |                       |   |                   |   |       |       |   |   | 106,396     |  
|Issuance of warrants in connection
  with notes payable                                                           |  |                                | 344,104    |                       |   |                   |   |       |       |   |   | 344,104     |  
|Net loss for the year                                                                                             |  |                                |           |                       |   | (2,386,373         | ) |       |       |   |   | (2,386,373  | )
|                                                                                                                 
|                                                                                                                  |  |                                |            |                       |   |                    |   |       |        |   |   |             |  
|Balance at December 31, 2007                                                                                      |  | $                              | 36,365,516 |                       | $ | (37,804,116        | ) | $     |       |   | $ | (1,433,730  | )
|                                                                                                                  |  |                                |            |                       |   |                    |   |       |        |   |   |             |  

The accompanying notes are an
integral part of these financial statements.

F-7

---



SecureCare Technologies, Inc.

STATEMENTS OF CASH FLOWS 
For the Years Ended December 31, 2007 and 2006

|                                                                               |  |      |            |      |   |             |  
|------------------------------------------------------------------------------ |  | ---- | ---------- | ---- | - | ----------- | -
|                                                                               |  | 2007 |            | 2006 |  
|                                                                               |  |      |            |      |  
|Cash flows from operating
  activities                                         |  |      |            |      |   |             |  
|Net loss                                                                       |  | $    | (2,386,373 | )    | $ | (20,352,778 | )
|Adjustments to reconcile net loss
  to net                                     |  |      |            |      |   |             |  
|cash used in operating activities:                                             |  |      |            |      |   |             |  
|Depreciation and amortization                                                  |  |      | 35,167     |      |   | 87,606      |  
|Bad debt expense                                                               |  |      | 2,524      |      |   | 44,702      |  
|Common stock issued for services                                               |  |      | 45,000     |      |   | 75,000      |  
|Stock compensation expense                                                     |  |      | 318,878    |      |   | 153,704     |  
|Loss on debt settlement, net                                                   |  |      |           |      |   | 120,998     |  
|Loss on early extinguishment of
  debt                                         |  |      | 381,358    |      |   | 19,030,648  |  
|Amortization of deferred financing
  fees                                      |  |      |           |      |   | 5,514       |  
|Amortization of debt discount                                                  |  |      | 386,026    |      |   | 21,334      |  
|Increases and decreases in working
  capital accounts:                         |  |      |            |      |   |             |  
|Accounts receivable - trade                                                    |  |      | (6,017     | )    |   | (17,842     | )
|Prepaid expenses                                                               |  |      | (10,170    | )    |   | 12,822      |  
|Deposits                                                                       |  |      |           |      |   | 32,739      |  
|Deferred revenue                                                               |  |      |           |      |   | (16,183     | )
|Accounts payable - trade                                                       |  |      | (7,615     | )    |   | 14,195      |  
|Accrued liabilities                                                            |  |      | (106,308   | )    |   | 189,332     |  
|                                                                               |  |      |            |      |  
|Cash flows used in operating
  activities                                      |  |      | (1,347,530 | )    |   | (598,209    | )
|                                                                               |  |      |            |      |   |             |  
|Cash flows from investing
  activities                                         |  |      |            |      |   |             |  
|Capital expenditures                                                           |  |      | (25,940    | )    |   | (25,310     | )
|Capitalized software development
  costs                                       |  |      | (52,000    | )    |   | (13,750     | )
|                                                                               |  |      |            |      |  
|Cash flows used in investing
  activities                                      |  |      | (77,940    | )    |   | (39,060     | )
|                                                                               |  |      |            |      |   |             |  
|Cash flows from financing
  activities                                         |  |      |            |      |   |             |  
|                                                                               |  |      | 1,457,000  |      |   | 187,500     |  
|Proceeds from notes payable,
  including $657,000 from related parties in 2007 |  |      |            |      |   |             |  
|Proceeds from the issuance of
  preferred stock                                |  |      |           |      |   | 576,519     |  
|                                                                               |  |      |            |      |  
|Cash flows provided by financing
  activities                                  |  |      | 1,457,000  |      |   | 764,019     |  
|                                                                               |  |      |            |      |   |             |  
|                                                                               |  |      |            |      |   |             |  

The
accompanying notes are an integral part of these financial statements.

F-8

---



SecureCare Technologies, Inc.

STATEMENTS OF CASH FLOWS - CONTINUED 
For the Years Ended December 31, 2007 and 2006

|                                                                                                               |  |      |           |      |   |            | 
|-------------------------------------------------------------------------------------------------------------- |  | ---- | --------- | ---- | - | ---------- | 
|                                                                                                               |  | 2007 |           | 2006 |  
|                                                                                                               |  |      |           |      |  
|Net increase in cash and cash
  equivalents                                                                    |  |      | 31,530    |      |   | 126,750    | 
|                                                                                                               |  |      |           |      |   |            | 
|Cash and cash equivalents,
  beginning of year                                                                 |  |      | 130,150   |      |   | 3,400      | 
|                                                                                                               |  |      |           |      |   |            | 
|Cash and cash equivalents, end of
  year                                                                       |  | $    | 161,680   |      | $ | 130,150    | 
|                                                                                                               |  |      |           |      |   |            | 
|                                                                                                               |  |      |           |      |   |            | 
|Supplemental disclosures for cash
  flow information:                                                          |  |      |           |      |   |            | 
|                                                                                                               |  |      |           |      |   |            | 
|Interest paid                                                                                                  |  | $    | 11,640    |      | $ |           | 
|                                                                                                               |  |      |           |      |   |            | 
|                                                                                                               |  |      |           |      |   |            | 
|Conversion of note payable and
  accrued interest in to common stock                                           |  | $    | 244,018   |      | $ | 1,829,296  | 
|                                                                                                               |  |      |           |      |   |            | 
|                                                                                                               |  |      |           |      |   |            | 
|Deemed dividend upon issuance of
  convertible preferred stock                                                 |  | $    | 393,080   |      | $ | 183,438    | 
|                                                                                                               |  |      |           |      |   |            | 
|                                                                                                               |  |      |           |      |   |            | 
|Fair value of warrants in
  connection with issuance of notes payable                                          |  | $    | 1,514,649 |      | $ | 1,733,861  | 
|                                                                                                               |  |      |           |      |   |            | 
|                                                                                                               |  |      |           |      |   |            | 
|Issuance of Series C preferred
  stock in connection with extinguishment of notes payable and accrued interest |  | $    |          |      | $ | 20,894,543 | 
|                                                                                                               |  |      |           |      |   |            | 
|                                                                                                               |  |      |           |      |   |            | 
|Issuance of common stock in
  connection with extinguishment of notes payable and accrued interest             |  | $    | 644,376   |      | $ |           | 
|                                                                                                               |  |      |           |      |   |            | 
|                                                                                                               |  |      |           |      |   |            | 
|Fair value of common stock in
  connection with issuance of notes payable                                      |  | $    | 417,083   |      | $ |           | 
|                                                                                                               |  |      |           |      |   |            | 
|                                                                                                               |  |      |           |      |   |            | 
|Beneficial conversion feature of
  convertible notes payable                                                   |  | $    | 106,396   |      | $ | 18,844     | 
|                                                                                                               |  |      |           |      |   |            | 
|                                                                                                               |  |      |           |      |   |            | 
|Issuance of warrants in connection
  with notes payable                                                        |  | $    | 344,104   |      | $ | 171,784    | 
|                                                                                                               |  |      |           |      |   |            | 

The
accompanying notes are an integral part of these financial statements.

F-9

---



SecureCare Technologies, Inc.

NOTES
TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE A - BACKGROUND AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES

NATURE OF THE BUSINESS

SecureCares
management believes that the Company is a leading provider of Internet-based
document exchange and e-signature solutions for the healthcare industry.

The Companys
proprietary technology offers workflow solutions that enable documents to be
sent, retrieved, signed and remotely viewed anywhere in the world, between
providers of healthcare, while protecting patient privacy as required by law.

The Companys
Internet-based Sfax with Digital Signature is the only secure EFR (electronic
fax record) that is 100 percent dedicated to the healthcare industry. The
product is a HIPAA-ready (Health Insurance Portability and Accountability Act)
work flow solution that saves end-users up to 95 percent of the time and up to
80 percent of the cost of manual faxing. It provides a complete log and audit
trail for all fax documents and completely eliminates the manual paper
processing of fax documents. Sfax is distributed to end-users through the
Companys network of health care software vendors and value-added resellers.

The Companys
Internet-based SecureCare.net portal is an electronic document exchange and
e-signature workflow solution that was built with Microsofts dotNet
state-of-the art development tools. The SecureCare.net portal is tailored to
the needs of physicians, clinics and home healthcare, hospice and durable
medical equipment providers. This end-to-end solution offers a money-saving
approach to accessing information and managing time-consuming forms and
authorizations. It eliminates paper while enhancing the physicians ability to
capture fees for otherwise unbilled time and services.

The Company
markets its services to customers throughout the United States; currently
operating from its Austin, Texas-based corporate headquarters.

The Company
intends to continue to utilize the Internet to provide browser-initiated
healthcare document exchange and e-signature solutions that facilitate the
confidential, on-line exchange of healthcare information for many participants
in the healthcare industry. Based on the technology and products in place,
other applications can and will be developed that will enhance the Companys
position in the physicians office and in the offices of other providers of
healthcare. These services using Internet technology in the healthcare industry
are subject to risks, including but not limited to those associated with
competition from existing companies offering similar services, rapid
technological change, development risks, management of growth and a minimal
previous record of operations or earnings.

F-10

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE A - BACKGROUND AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

GOING CONCERN

The financial
statements have been prepared on the assumption that the Company will continue
as a going concern. The Company sustained net losses of $2,386,373 and
$20,352,778 for the years ended December 31, 2007 and 2006, respectively. The
Company has accumulated losses through December 31, 2007 of $37,804,116
(including a non-recurring loss on early extinguishment of debt totaling
$19,030,648 incurred in the fourth quarter of 2006 and $381,358 incurred in the
second quarter of 2007). Cash used in operating activities for the same periods
aggregated $1,347,530 and $598,209, respectively. Total liabilities at December
31, 2007 of $1,721,133 significantly exceed total assets of $287,403. As of the
date of this report, the Company is unable to meet all of its short-term
obligations because of shortages of cash. The Companys continued existence
depends upon the success of managements efforts to raise additional capital
necessary to meet the Companys obligations as they come due, and to obtain
sufficient capital to execute its business plan. The Company intends to obtain
capital primarily through issuances of debt or equity. There can be no degree
of assurance that the Company will be successful in completing additional
financing transactions. Failure to generate additional revenues, raise
additional capital or manage discretionary spending could have a material
adverse effect on the Companys ability to continue as a going concern and to
achieve its intended business objectives. The accompanying unaudited financial
statements do not include any adjustments to reflect the possible effects on the
recoverability and classification of assets or classification of liabilities
which may result from the inability of the Company to continue as a going
concern.

CASH AND CASH EQUIVALENTS

The Company
considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents.

ACCOUNTS RECEIVABLE AND ALLOWANCE FOR
DOUBTFUL ACCOUNTS

Trade accounts
receivable are stated at the amount the Company expects to collect. The Company
maintains allowances for doubtful accounts for estimated losses resulting from
the inability of its customers to make required payments. Management considers
the following factors when determining the collectibility of specific customer
accounts: customer credit-worthiness, past transaction history with the
customer, current economic industry trends, and changes in customer payment
terms. The Companys accounts receivable are not secured. If the financial
condition of the Companys customers were to deteriorate, adversely affecting
their ability to make payments, additional allowances would be required. Based
on managements assessment, the Company provides for estimated uncollectible
amounts through a charge to earnings and an increase to a valuation allowance.
Balances that remain outstanding after the Company has used reasonable
collection efforts are written off through a charge to the valuation allowance.

PROPERTY AND EQUIPMENT

Property and
equipment are recorded at cost. The Company provides for depreciation of its
property and equipment using the straight-line method over the estimated useful
life of the depreciable assets ranging from two to five years. Maintenance and
repairs are expensed as incurred. Replacements and betterments are capitalized.

Depreciation
expense for the years ended December 31, 2007 and 2006 was $35,168 and $87,606,
respectively.

F-11

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE A - BACKGROUND AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

SOFTWARE AND SOFTWARE DEVELOPMENT COSTS

The Company
capitalizes costs related to computer software developed or obtained for
internal use in accordance with the American Institute of Certified Public
Accountants Statement of Position (SOP) 98-1, Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use and is depreciated
using the straight-line method over the estimated useful life of the software,
generally two years. At December 31, 2007, capitalized software development
costs totaled $235,750, less accumulated amortization of $180,958. During the
twelve month period ended December 31, 2007, $65,750 in software development
costs were capitalized, including $13,750 in costs incurred in 2006.

INCOME TAXES

Deferred
income taxes are recognized for the tax consequences of temporary differences
by applying enacted statutory tax rates applicable to future years to
differences between financial statement carrying amounts and the tax basis of
existing assets and liabilities. Under the asset and liability method, the
effect on deferred taxes of a change in tax rates is recognized in income in
the period that includes the enactment date.

Valuation
allowances are established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is the payable or
refund for the period plus or minus the change during the period in deferred
tax assets and liabilities.

In January
2007, the Company adopted the Financial Accounting Standards Board Interpretation
No. 48, Accounting for Uncertainty in Income Taxes  an Interpretation of
FASB Statement No. 109 (FIN 48). This Interpretation clarifies the
accounting for uncertainty in income taxes recognized in a companys financial
statements. FIN 48 requires companies to determine whether it is more likely
than not that a tax position will be sustained upon examination by the
appropriate taxing authorities before any part of the benefit can be recorded
in the financial statements. It also provides guidance on the recognition,
measurement and classification of income tax uncertainties, along with any
related interest and penalties. The Company did not recognize any adjustments
to its financial statements as a result of the implementation of FIN 48.

REVENUE RECOGNITION

The Company
derives its revenues from the following home healthcare provider sources -
recurring monthly service fees, one-time training and set-up fees and
integration and customization services as contracted.

The Company
recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 104,
Revenue Recognition (SAB 104). SAB 104 generally requires that four basic
criteria must be met before revenue can be recognized: (1) persuasive evidence
of an arrangement exists; (2) delivery has occurred or services have been
rendered; (3) the fee is fixed and determinable; and (4) collectibility is
reasonably assured. Determination of criteria (3) and (4) are based on
managements judgments regarding the fixed nature of the fee charged for services
rendered and the collectibility of those fees. Should changes in conditions
cause management to determine these criteria are not met for certain sales,
revenue recognized for any reporting period could be adversely affected. In
instances where any one of the four criteria is not met, the Company will
either defer recognition of the monthly service fees until the criteria are met
or will recognize the recurring monthly service fees on a ratable basis.
Recognition of revenue resulting from one-time training and set-up fees, which
are billed upfront, is deferred and amortized over the life of the
corresponding arrangements.

LOSS PER COMMON SHARE

Basic net loss
per share is computed by dividing net loss by the weighted average number of
common shares outstanding for the year. Diluted net loss per share is computed
by dividing net loss by the weighted average number of common shares and
dilutive common stock equivalents outstanding for the year. Common stock
equivalents for the years ended December 31, 2007 and 2006 totaling 954,110 and 182,897, respectively, have been excluded
from the computation since such inclusion would have an anti-dilutive effect.

F-12

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE A - BACKGROUND AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

LONG-LIVED ASSETS

Long-lived
assets are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount of an asset to the undiscounted future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the net asset exceeds the fair value of the assets. Assets to be
disposed of are reported at the lower of the carrying amount or fair value less
costs to sell.

STOCK-BASED COMPENSATION

On January 1,
2006, the Company adopted the modified prospective method of SFAS No. 123
(revised 2004), Share-Based Payment (SFAS No. 123R). SFAS No. 123R
supersedes APB Opinion No. 25, and amends SFAS No. 95, Statement of Cash
Flows. SFAS No. 123R requires that all share-based payments to employees,
including the grant of employee stock options, be recognized in the income
statement based on their fair values. Under the modified prospective
application, SFAS No. 123R is applied to new awards and awards modified,
repurchased or cancelled after the effective date. Compensation cost for the
portion of awards for which requisite service has not been rendered that are
outstanding as of the effective date is recognized as the requisite service is
rendered on or after the effective date. The compensation cost for the portion
of awards is based on the grant date fair value of those awards, less estimated
forfeitures.

Stock-based
compensation expense recognized during the period is based on the value of the
portion of the stock-based payment awards that is ultimately expected to vest
less estimated forfeitures. SFAS No. 123R requires forfeitures to be estimated
at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates.

The Company
accounts for equity instruments issued to non-employees in accordance with the
provisions of SFAS No. 123 as amended and Emerging Issues Task Force (EITF)
Issue No. 96-18, Accounting for Equity Instruments That Are Issued to Other
Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services. All transactions in which goods or services are the consideration
received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity
instrument issued, whichever is more reliably measurable. The measurement date
of the fair value of the equity instrument issued is the earlier of the date on
which the counterpartys performance is complete or the date on which it is probable
that performance will occur.

F-13

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE A - BACKGROUND AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (Continued)

USE OF ESTIMATES

The preparation
of financial statements in conformity with accounting principles generally
accepted in the United States of America requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of the Financial Statements and the reported amount of revenues and
expenses during the reporting period. The Companys most significant estimates
relate to fair value for stock based compensation, software services revenue
recognition, capitalization of software development costs and depreciation of
fixed assets. Actual results could differ from these estimates.

RECENT ACCOUNTING PRONOUNCEMENTS

In September
2006, the FASB issued SFAS No. 157, Fair Value Measurements (SFAS 157). SFAS
157 defines fair value, established a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair
value measurements. SFAS No. 157 is generally effective for financial
statements issued for fiscal years beginning after November 15, 2007. The
Company does not expect the adoption of SFAS No. 157 to significantly affect
its financial condition or results of operations.

In February
2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities,
which allows companies the option to measure financial assets or liabilities at
fair value and include unrealized gains and losses in net income rather than
equity. This becomes available when the Company adopts SFAS 157, which
will be fiscal year 2008. The Company is analyzing the expected impact from
adopting this statement on its financial statements, but currently does not
believe its adoption will have a significant impact on the financial position
or results of operations of the Company.

In December 2007,
the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS 141R). SFAS 141R will
significantly change the accounting for business combinations in a number of
areas including the treatment of contingent consideration, contingencies, acquisition
costs, IPR&D and restructuring costs. In addition, under SFAS 141R,
changes in deferred tax asset valuation allowances and acquired income tax
uncertainties in a business combination after the measurement period will
impact income tax expense. SFAS 141R is effective for fiscal years
beginning after December 15, 2008. The Company has not yet determined the
impact, if any, SFAS 141R will have on its financial condition or results
of operations.

F-14

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE B - PROPERTY AND EQUIPMENT

Property and
equipment at December 31, 2007 and 2006 consists of the following:

|                                                  |  |      |          |      |   |          |  
|------------------------------------------------- |  | ---- | -------- | ---- | - | -------- | -
|                                                  |  | 2007 |          | 2006 |  
|                                                  |  |      |          |      |  
|Computer
  equipment and software                 |  | $    | 559,774  |      | $ | 481,834  |  
|Furniture
  and office equipment                  |  |      | 12,538   |      |   | 12,538   |  
|                                                  |  |      |          |      |   |          |  
|                                                  |  |      | 572,312  |      |   | 494,372  |  
|                                                  |  |      |          |      |   |          |  
|Less:
  accumulated depreciation and amortization |  |      | (484,263 | )    |   | (449,096 | )
|                                                  |  |      |          |      |   |          |  
|Net
  property and equipment                      |  | $    | 88,049   |      | $ | 45,276   |  
|                                                  |  |      |          |      |   |          |  

Computer equipment and software
includes $235,750 and $183,750 at December 31, 2007 and 2006, respectively, in
costs capitalized in the development of software held for internal use.

F-15

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE C - NOTES PAYABLE

Notes payable
at December 31, 2007 and December 31, 2006 consist of the following:

|                                                                                              |  |            |           |           |   |            |   |           |         |  |   |          |  
|--------------------------------------------------------------------------------------------- |  | ---------- | --------- | --------- | - | ---------- | - | --------- | ------- |  | - | -------- | -
|                                                                                              |  | 2007       |           | 2006      |  
|                                                                                              |  |            |           |           |  
|                                                                                              |  | Short
Term |           | Long
Term |   | Short
Term |   | Long
Term |        
|Note payable to investors bearing interest at 7.5%.                                           |  |            |           |           |   |            |   |           |         |  |   |          |  
|Note is in default as of February 13, 2006,
unsecured                                         |  | $          |          |           |   |           |   | $         | 200,000 |  |   |         |  
|Note payable to Phoebe Holdings, Inc. at 7.5%,                                                |  |            |           |           |   |            |   |           |         |  |   |          |  
|Note is in default as of May 1, 2005,
unsecured                                               |  |            | 63,500    |           |   |           |   |           | 63,500  |  |   |         |  
|Convertible bridge note payable bearing interest at 6%                                        |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal and interest due December 4, 2008,
unsecured, including
 $30,000 to related parties |  |            | 45,000    |           |   |           |   |           |        |  |   | 45,000   |  
|Related party convertible bridge note payable bearing interest at
6%                          |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal and interest due December 4, 2008,
unsecured                                        |  |            | 15,000    |           |   |           |   |           |        |  |   | 15,000   |  
|Related party convertible bridge note payable bearing interest at
6%                          |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal and interest due December 6, 2008,
unsecured                                        |  |            | 15,000    |           |   |           |   |           |        |  |   | 15,000   |  
|Convertible bridge note payable bearing interest at 6%                                        |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal and interest due December 18, 2008,
unsecured                                       |  |            | 50,000    |           |   |           |   |           |        |  |   | 50,000   |  
|Related party convertible bridge note payable bearing interest at
6%                          |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal and interest due December 18, 2008,
unsecured                                       |  |            | 12,500    |           |   |           |   |           |        |  |   | 12,500   |  
|Convertible bridge note payable bearing interest at 6%                                        |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal and interest due December 27, 2008,
unsecured                                       |  |            | 50,000    |           |   |           |   |           |        |  |   | 50,000   |  
|Convertible bridge note payable bearing interest at 6%                                        |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal and interest due January 18, 2009,
unsecured                                        |  |            |          |           |   | 50,000     |   |           |        |  |   |         |  
|Related party convertible bridge note payable bearing interest at
6%                          |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal and interest due January 18, 2009,
unsecured                                        |  |            |          |           |   | 12,500     |   |           |        |  |   |         |  
|Related party convertible bridge note payable bearing interest at
6%                          |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due February 7, 2009, interest payable
semi-annually,
 unsecured                    |  |            |          |           |   | 83,500     |   |           |        |  |   |         |  
|Related party convertible bridge note payable bearing interest at
6%                          |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due February 12, 2009, interest payable
semi-annually,
 unsecured                   |  |            |          |           |   | 83,500     |   |           |        |  |   |         |  
|Related party convertible bridge note payable bearing interest at
6%                          |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due February 15, 2009, interest payable
semi-annually,
 unsecured                   |  |            |          |           |   | 83,500     |   |           |        |  |   |         |  
|Convertible bridge note payable bearing interest at 6%                                        |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due April 17, 2009, interest payable
semi-annually,
 unsecured                      |  |            |          |           |   | 25,000     |   |           |        |  |   |         |  
|Convertible bridge note payable bearing interest at 6%                                        |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due April 17, 2009, interest payable
semi-annually,
 unsecured                      |  |            |          |           |   | 7,500      |   |           |        |  |   |         |  
|Convertible bridge note payable bearing interest at 6%                                        |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due April 19, 2009, interest payable
semi-annually,
 unsecured                      |  |            |          |           |   | 25,000     |   |           |        |  |   |         |  
|Convertible bridge note payable bearing interest at 6%                                        |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due April 26, 2009, interest payable
semi-annually,
 unsecured                      |  |            |          |           |   | 25,000     |   |           |        |  |   |         |  
|Related party convertible bridge note payable bearing interest at
6%                          |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due May 9, 2009, interest payable
semi-annually, unsecured                          |  |            |          |           |   | 15,000     |   |           |        |  |   |         |  
|Related party convertible bridge note payable bearing interest at
6%                          |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due May 9, 2009, interest payable
semi-annually, unsecured                          |  |            |          |           |   | 10,000     |   |           |        |  |   |         |  
|Convertible bridge note payable bearing interest at 6%                                        |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due May 9, 2009, interest payable
semi-annually, unsecured                          |  |            |          |           |   | 10,000     |   |           |        |  |   |         |  
|Convertible bridge note payable bearing interest at 6%                                        |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due May 9, 2009, interest payable
semi-annually, unsecured                          |  |            |          |           |   | 10,000     |   |           |        |  |   |         |  
|Related party convertible bridge note payable bearing interest at
6%                          |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal due May 11, 2009, interest payable
semi-annually, unsecured                         |  |            |          |           |   | 10,000     |   |           |        |  |   |         |  
|Note payable to Investor bearing interst at 6%                                                |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal and interest due May 30, 2008                                                       |  |            | 50,000    |           |   |           |   |           |        |  |   |         |  
|Bridge notes payable bearing interest at 6%                                                   |  |            |           |           |   |            |   |           |         |  |   |          |  
|Principal and interest due December 31, 2008,
including $359,000 to
 related parties          |  |            | 956,500   |           |   |           |   |           |        |  |   |         |  
|                                                                                              |  |            |           |           |   |            |   |           |         |  |   |          |  
|                                                                                              |  | $          | 1,257,500 |           | $ | 450,500    |   | $         | 263,500 |  | $ | 187,500  |  
|Less: unamortized debt discount                                                               |  |            | (400,633  | )         |   | (264,382   | ) |           |        |  |   | (183,458 | )
|                                                                                              |  |            |           |           |   |            |   |           |         |  |   |          |  
|Total notes payable                                                                           |  | $          | 856,867   |           | $ | 186,118    |   | $         | 263,500 |  | $ | 4,042    |  
|                                                                                              |  |            |           |           |   |            |   |           |         |  |   |          |  

F-16

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS 
For the Years Ended December 31, 2007 and 2006

NOTE C - NOTES PAYABLE (Continued)

Bridge Financing Summary  June 2007 through December 2007

On June 13,
2007, the Board of Directors approved, effective June 1, 2007, the issuance of
a series of Notes Payable (the Financing) totaling $1,500,000 maturing on
December 31, 2008, with a stated interest rate of 6% per annum, with principal
and interest payable at maturity. The Company has the option to extend the
maturity date of the notes an additional twelve months. The stated interest
rate on these notes during the optional extension period is 9% per annum. The
Notes Payable have attached shares of the Companys stock in the form of one
share of common stock for each $2.50 invested into the offering for a total of
up to 600,000 shares of common stock to be issued.

From June 1,
2007 through December 31, 2007 the Company received a total of $956,500 in
gross proceeds from issuance of the notes payable. In addition, the Company
issued 382,600 shares of common stock to the participating investors. These
shares were valued at a range of $0.80 to $6.00 per share resulting in a total
fair value of $1,961,700. The Company allocated the proceeds received between
the notes payable and the shares of common stock issued based on the relative
fair values at the date of issuance. Based on the relative fair value
calculations, the Company allocated $417,083 of the $956,500 in proceeds to the
shares of common stock issued and the remaining $539,417 to the notes payable.
The debt discount amount of $417,083 is being amortized as a component of
interest expense over the life of the notes, ranging from twelve to eighteen
months.

Bridge Financing Summary  January 2007 through May 2007

During the
year ended December 31, 2007 in conjunction with the issuance of $450,500 in 6%
convertible bridge notes payable, the Company issued 180,200 warrants to
purchase one share of common stock at $5.00 per share. These warrants were valued
at a range of $5.91 to $10.00 per warrant resulting in a total fair value of
$1,514,649. The Company allocated the proceeds received between the notes
payable and the detachable warrants based on the relative fair values at the
date of issuance. Based on the relative fair value calculations, the Company
allocated $344,104 of the $450,500 in proceeds to the detachable warrants and
the remaining $106,396 to the notes payable. The notes also contained a
conversion feature allowing the note holders to convert the notes into common
shares at a conversion price of $2.50 per share. The Company calculated a
beneficial conversion feature in the amount of $1,425,661; however, the value
of the beneficial conversion feature may not exceed the proceeds allocated to
the notes payable under the relative fair value calculations. As a result, the
value of the beneficial conversion feature is limited to $106,396, which is the
amount of the proceeds allocated to notes payable. The debt discount amount of
$450,500 ($344,104 related to the fair value of the warrants and $106,396
related to the beneficial conversion feature) is being amortized as a component
of interest expense over the life of the notes (twenty-four months).

Other

In addition,
on November 13, 2007, the Company issued a $50,000 six month promissory note,
bearing interest at 6% per annum.

In June 2007,
in accordance with the terms and conditions of the Companys original
conversion offer, dated October 19, 2006, to convert the principal amounts of
notes payable and accrued interest through September 15, 2006, to common stock,
the Company received signed consents from additional note holders accepting the
conversion offer representing $200,000 in notes payable and $44,018 in accrued
interest. To affect these additional conversions, the Company issued 107,396
shares of common stock. The difference between the net carrying amount of the
extinguished debt and the reacquisition price of the extinguished debt,
totaling $381,358 was recognized as a loss in the period of extinguishment.

As of December
31, 2007, the Company is in default on the principal amount of $63,500 in an
unsecured note payable.

In December,
2007 the Company paid interest of $11,640 on the portion of its Bridge IV
Financing notes payable that require semi-annual interest payments. These
payments included $8,115 paid to related parties.

Future
maturities of notes payable at December 31, 2007 are as follows:

|      |  |   |           | 
|----- |  | - | --------- | 
|2008  |  | $ | 1,257,500 | 
|2009  |  |   | 450,500   | 
|      |  |   |           | 
|     
|Total |  | $ | 1,708,000 | 
|      |  |   |           | 

F-17

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS 
For the Years Ended December 31, 2007 and 2006

NOTE D  LEASE COMMITMENTS

The Company
relocated its principal executive office to a new location in Austin, Texas in
February of 2006. The new premise was leased under a month-to-month agreement,
requiring a 10-day written notice of cancelation. As a result of the new
monthly office lease agreement, the Company has no future minimum lease
payments.

Rent expense
totaled $18,550 and $37,703 for the years ended December 31, 2007 and 2006,
respectively.

The Company
was notified on January 20, 2006, that it was in default under its master
electronic equipment lease primarily due to its failure to pay the base monthly
rental payments after October 2005. On February 20, 2006, the Company returned
approximately $300,000 of the hardware and software to the lessor, retaining
approximately $14,000 of the original leased property. The notice of default on
the lease did not relieve, suspend or waive the Companys continued
responsibility for the monthly rental payments for the balance of the initial
lease term. As of February 20, 2006, the Company had approximately $59,000 of
its original lease deposit amount of $124,717 in tact. The Company restructured
the remaining amount owed under the lease for an additional twenty-four months.
The net amount owed included an offset credit given for the lease deposit of
$59,239. The restructured balance totaled $107,102 as of February 20, 2006. The
Company made its first payment on the restructured lease in July 2006. In
August 2006, the Company was notified by the lessor that a partial credit of
$14,849 was being issued to the Company, against the restructured balance, for
the equipment returned to the lessor in February 2006. At December 31, 2007,
the restructured balance due totaled $30,342 and is included in other accrued
liabilities. The entire amount of $30,342 is due in 2008.

Lease expense
totaled $0 and $32,739 for the year ended December 31, 2007 and 2006,
respectively.

NOTE E - INCOME TAXES

At December
31, 2007 and 2006 deferred tax assets and liabilities are comprised of the
following:

|                                 |  |      |            |      |   |            |  
|-------------------------------- |  | ---- | ---------- | ---- | - | ---------- | -
|                                 |  | 2007 |            | 2006 |  
|                                 |  |      |            |      |  
|Current
  deferred tax asset     |  | $    | 680        |      | $ | 680        |  
|Non-current
  deferred tax asset |  |      | 3,172,022  |      |   | 2,634,900  |  
|Less:
  valuation allowance      |  |      | (3,172,702 | )    |   | (2,644,580 | )
|                                 |  |      |            |      |   |            |  
|Net
  deferred tax asset         |  | $    |           |      | $ |           |  
|                                 |  |      |            |      |   |            |  

Non-current
deferred tax assets principally result from net operating losses. The current
deferred tax asset results from the allowance for doubtful receivables which is
not currently deducted for income tax reporting purposes. The December 31, 2007
and 2006 deferred tax assets have a 100% valuation allowance due to the
uncertainty of generating future taxable income.

Differences
between the statutory federal income tax rate and the effective rate for the
years ended December 31, 2007 and 2006 are as follows:

|                                                                                    |  |      |       |      |  |       |  
|----------------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | ----- | -
|                                                                                    |  | 2007 |       | 2006 | 
|                                                                                    |  |      |       |      | 
|Income
  tax provision at statutory rate                                            |  |      | 34.0  | %    |  | 34.0  | %
|Permanent differences (primarily
  non-cash expense for conversion of debt in 2006) |  |      | (12.0 | )    |  | (32.0 | )
|Change
  in valuation allowance                                                     |  |      | (22.0 | )    |  | (2.0  | )
|                                                                                    |  |      |       |      |  |       |  
|                                                                                    |  |      | 0.0   | %    |  | 0.0   | %
|                                                                                    |  |      |       |      |  |       |  

The Company
has a net operating loss carry forward of approximately $9,329,000 at December
31, 2007. All net operating losses of the Company generated prior to 2003 were
eliminated through the bankruptcy process. Accordingly, the net operating loss
at December 31, 2007 consists of losses that were generated subsequent to the
bankruptcy filing. The net operating loss carryover will begin to expire in
2024. The net operating loss carryover may be limited in the event of an
ownership change as defined in Section 382 of the Internal Revenue Code.

F-18

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS 
For the Years Ended December 31, 2007 and 2006

NOTE F - SHAREHOLDERS DEFICIT

In November,
2007 the holder of 80,000 shares of Series A Convertible preferred stock and
90,909 shares of Series B Convertible preferred stock voluntarily converted
these preferred stock shares to 400 and 455 shares of common stock,
respectively.

Bridge Financing Summary  June, 2007 through December, 2007

As discussed
in Note C, on June 13, 2007, the Board of Directors approved, effective June 1,
2007, the issuance of a series of Notes Payable (the Financing) totaling
$1,500,000 maturing on December 31, 2008, with a stated interest rate of 6% per
annum, with principal and interest payable at maturity. The Company has the
option to extend the maturity date of the notes an additional twelve months.
The stated interest rate on these notes during the optional extension period is
9% per annum. The Notes Payable have attached shares of the Companys stock in
the form of one share of common stock for each $2.50 invested into the offering
for a total of up to 600,000 shares of common stock to be issued.

From June 1,
2007 through December 31, 2007 the Company received a total of $956,500 in
gross proceeds from issuance of the Notes Payable. In addition, the Company
issued 382,600 shares of common stock to the participating investors. These
shares were valued at a range of $0.80 to $6.00 per share resulting in a total
fair value of $1,961,700. The Company allocated the proceeds received between
the notes payable and the shares of common stock issued based on the relative
fair values at the date of issuance. Based on the relative fair value
calculations, the Company allocated $417,083 of the $956,500 in proceeds to the
shares of common stock issued and the remaining $539,417 to the notes payable.
The debt discount amount of $417,083 is being amortized as a component of
interest expense over the life of the notes, ranging from fifteen to eighteen
months.

Effective June
1, 2007, the Company entered into a short-term agreement with an Investor
Relations firm, Mercom Capital Group (Mercom), for investor relations
services. As partial compensation for these services, the Company agreed to
issue 7,500 shares of its common stock to Mercom. The Company recorded $45,000
in financial consulting expense related to the issuance of the 7,500 shares of
common stock which were valued at $6.00 per share on June 13, 2007, the date
the Board of Directors of the Company approved the share issuance.

In June 2007,
in accordance with the terms and conditions of the Companys original
conversion offer, dated October 19, 2006, to convert the principal amounts of
notes payable and accrued interest through September 15, 2006, to common stock,
the Company received signed consents from additional note holders accepting the
conversion offer representing $200,000 in notes payable and $44,018 in accrued
interest. To affect these additional conversions, the Company issued 107,396
shares of common stock.

Bridge Financing Summary  January 2007 through May 2007

As discussed
in Note C, during the year ended December 31, 2007 in conjunction with the
issuance of $450,500 in 6% convertible bridge notes payable, the Company issued
180,200 warrants to purchase one share of common stock at $5.00 per share.
These warrants were valued at a range of $5.91 to $10.00 per warrant resulting
in a total fair value of $1,514,649. The Company allocated the proceeds
received between the notes payable and the detachable warrants based on the
relative fair values at the date of issuance. Based on the relative fair value
calculations, the Company allocated $344,104 of the $450,500 in proceeds to the
detachable warrants and the remaining $106,396 to the notes payable. The notes
also contained a conversion feature allowing the note holders to convert the
notes into common shares at a conversion price of $2.50 per share. The Company
calculated a beneficial conversion feature in the amount of $1,425,661;
however, the value of the beneficial conversion feature may not exceed the
proceeds allocated to the notes payable under the relative fair value
calculations. As a result, the value of the beneficial conversion feature is
limited to $106,396, which is the amount of the proceeds allocated to notes
payable. The debt discount amount of $450,500 ($344,104 related to the fair
value of the warrants and $106,396 related to the beneficial conversion
feature) is being amortized as a component of interest expense over the life of
the notes (twenty-four months).

F-19

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS 
For the Years Ended December 31, 2007 and 2006

NOTE F - SHAREHOLDERS DEFICIT (Continued)

On February
28, 2007, the Board of Directors of the Company commenced written solicitation
of the holders of its common stock and its Series C Stock, as of February 23,
2007 (the Record Date) to grant the Companys Board of Directors
discretionary authority to effect a reverse stock split of two hundred for one
in order for the Company to have sufficient shares to meet its existing
obligations. This proposed reverse stock split did not change the number of
shares of common stock (50,000,000) that the Company is authorized to issue.
After completion of the taking of written shareholder consents, of the
approximate 232 million shares and share equivalents entitled to vote on the
proposal, approximately 167 million or 72% voted in favor of the proposal;
approximately 85,000 or .04% voted against the proposal and .01% abstained.

On April 24,
2007 (the Effective Date) the Company amended its articles of incorporation
with the State of Nevada to affect a 1 for 200 reverse stock split of its
common stock. As a result of the reverse stock split, effective April 24, 2007,
the Companys 20,304,000 issued and outstanding shares of common stock were changed
into approximately 101,520 shares of common stock (after giving effect to
rounding) and each of the Companys 1,058,835 issued and outstanding shares of
Series C Mandatorily Convertible Preferred Stock were automatically converted
into 200 shares of the Companys common stock for an aggregate of 211,767,000
shares of common stock which were automatically changed into approximately
1,058,835 shares of common stock. The total number of common shares issued and
outstanding immediately following the reverse stock split was approximately
1,160,355. All share and per share amounts have been restated for all periods
presented to reflect this reverse stock split.

On November
13, 2006 the Company issued 253,736 shares of Mandatorily Convertible Series C
Preferred Stock to equity investors representing $576,518 in equity financing.
The Series C Stock had no conversion rights unless and until the Company had
sufficient authorized shares of common stock available to permit the conversion
of all of the shares of Series C Stock at a rate of 200 common shares for each
share of Series C Stock. It was determined that on the commitment date of the
equity financing (September 15, 2006) a beneficial conversion, totaling
$576,518 existed to the investors in this equity financing. The Company
recognized this deemed dividend ratably over the period from the date the
Series C Stock shares were issued (November 13, 2006) and the date of the
earliest permitted conversion. Effective April 24, 2007, as a result of the
reverse stock split, the Mandatorily Convertible Series C Preferred stock
shares were automatically converted to 253,736 common shares. For the year
ended December 31, 2007 and 2006, the Company recognized a deemed dividend
related to the issuance of the convertible preferred stock of $393,080 and
$183,438, respectively.

On January 1,
2006, the Company reclassified to notes payable $50,000 in total principal
amount for an investment made in October of 2005, originally recorded as a
capital contribution from a major shareholder in accordance with the Companys
special terms agreement with Gryphon Opportunities Fund I, LLC. The Company
recognized that the special terms agreement with Gryphon was limited to a total
of $100,000, versus $150,000 as previously reported. Accordingly, the
investment of $50,000 in October of 2005 was reclassified as a 13-month, 12%
convertible promissory note attached to 3 year warrants to purchase common
shares equal to 20% of the investment (a total of 10,000 warrants), with a an
exercise price of the lesser of 75% of the per share purchase price on the
closing date or $0.75 per share. The 10,000 warrants had a purchase price of
$0.34 per share. In order to account for this reclassification, the Company
reduced additional paid-in capital and increased notes payable $50,000.

On January 24,
2006 the Company entered into a consulting agreement with an individual, Howard
Alweil, (the Consultant) for services related to locating qualified executive
personnel and reviewing the implementation strategy of the Companys public
relations and marketing efforts. As compensation for those services, the
Company agreed to issue the Consultant 300,000 registered shares of the
Companys common stock, to be registered under a Registration Statement on Form
S-8 or any other available form as soon as was practicable after the execution
and delivery of the consulting agreement. Accordingly, the Company filed a Form
S-8 Registration Statement Under the Securities Act of 1933 on February 10,
2006. The Company recorded $75,000 in financial consulting expenses related to
the issuance of the 300,000 shares of common stock which were valued at $0.25
per share on January 24, 2006.

F-20

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS 
For the Years Ended December 31, 2007 and 2006

NOTE F - SHAREHOLDERS DEFICIT (Continued)

The board of
directors ratified a letter agreement (the Letter Agreement) on June 16, 2006
with a related party, Gryphon Opportunities Fund I, LLC (GOF) (its majority
shareholder on that date) in which GOF agreed to convert all of its outstanding
notes payable and accrued interest to common stock of the Company and GOF
agreed to release its lien on the Companys assets. Both of these actions were
conditioned upon the Company raising an aggregate of $570,000 in equity
financing.

On June 16,
2006, the Company had approximately 30 million shares of common stock
authorized remaining to be issued. To complete the equity financing and the
conversion of the GOF outstanding notes payable and accrued interest to common
stock, both at a price of approximately $.01 per share common share, the
Company would have needed approximately 140 million authorized common shares.

As a result,
the Company authorized the creation of a new Mandatorily Convertible Series C
Preferred Stock (the Series C Stock) and commenced its equity financing at an
offering price of $2.72 per share of Series C Stock (approximately $.01 per
common share equivalent). Each share of Series C Stock represented 200 common
share equivalents. The Series C Stock had no conversion rights unless and until
the Company had sufficient authorized shares of common stock available to
permit the conversion of all of the shares of the Series C Stock at a rate of
200 common shares for each share of Series C Stock. The Series C Stock had no
liquidation preference, dividend rights or any other rights that were not
included in the rights of the current common stock holders.

The Company
achieved $570,000 in its equity financing on September 15, 2006 (the Commitment
Date), triggering the conversion of all of GOFs outstanding notes payable and
accrued interest, through the commitment date, of $600,967 and the release of
the GOF lien on the Companys assets.

Accordingly,
on November 13, 2006, upon filing its Certificate of Designation for the Series
C Stock with the State of Nevada, the Company immediately issued a total of
515,587 shares of Series C Stock including 251,903 shares issued in the equity
financing ($576,518 in total was raised by October 2, 2006) and 264,494 shares
issued to affect the conversion of GOFs notes and accrued interest.

To further its
financial restructuring efforts, on October 19, 2006 the Company made a
conversion offer to the remaining note holders to convert the balance of $1,283,500
in notes payable and the related accrued interest of $262,917 to Series C
Stock. By December 31, 2006, the Company had received signed consents from note
holders accepting the conversion offer representing $1,020,000 in notes payable
and $208,328 in accrued interest. To affect these additional conversions the
Company issued an additional 540,605 shares of Series C Stock.

After securing
shareholder approval of a one for two hundred reverse common stock split, on
April 24, 2007, the Company amended its Articles of Incorporation with the
State of Nevada to reflect the reverse common stock split. Immediately
thereafter, the Companys 20,304,000 shares of common stock were changed into
approximately 101,520 shares of common stock and each of the Companys
1,058,835 issued and outstanding shares of Series C Stock were automatically
converted to 200 shares of the Companys common stock for an aggregate of
211,767,000 shares of common stock which were automatically converted into
approximately 1,058,835 shares of common stock. The total number of common
shares issued and outstanding immediately following the reverse stock split was
approximately 1,160,355. All share and per share amounts have been restated for
all periods present to reflect the reverse stock split.

In December
2006, in conjunction with $187,500 in 6% convertible bridge notes payable
issued, the Company issued 75,000 warrants to purchase one share of common
stock at $5.00 per share. These warrants were valued at a range of $19.90 to
$29.90 per warrant resulting in a total fair value of $1,733,861. The Company
allocated the proceeds received between the notes payable and the detachable
warrants based on the relative fair values at the date of issuance. Based on
the relative fair value calculations, the Company allocated $168,656 of the
$187,500 in proceeds to the detachable warrants and the remaining $18,844 to
the notes payable. The notes also contained a conversion feature allowing the
note holders to convert the notes into common shares at a conversion price of
$2.50 per share. The Company calculated a beneficial conversion feature in the
amount of $1,721,156; however, the value of the beneficial conversion feature
may not exceed the proceeds allocated to the notes payable under the relative fair
value calculations. As a result, a beneficial conversion feature in the amount
of $18,844 was recorded. The debt discount amount of $187,500 ($168,656 related
to the fair value of the warrants and $18,884 related to the beneficial
conversion feature) is being amortized as a component of interest expense over
the life of the notes (twenty-four months).

The holders of
the Series A preferred stock are entitled to vote upon all matters upon which
holders of the common stock have the right to vote, and shall be entitled to
the number of votes equal to the largest number of full shares of common stock
into which the shares of preferred stock, pursuant to certain conversion and
anti-dilution rights, could be converted on the appropriate record date.  The holders of the Series A preferred stock
are entitled to receive out the assets of the Corporation legally available
therefore, dividends at the rate of 5 percent of the stated value ($1.00 per
share), payable on an annual basis, either in cash or in shares of the
Companys common stock, par value $0.001 per share, based on the fair market
value of the common stock on the date the dividend is declared, at the option
of the Company.  The holders of the Series
A preferred stock will have preference in payment of dividends over the
holders of common stock. Dividends on the Series A preferred stock are payable
when declared by the board of directors.
As of December 31, 2007, no dividends on the series A preferred stock
have been declared. The period for which dividends will be paid will be
determined by the board of directors at the time of dividend declaration.  The Certificate of Designation for the
series A preferred stock does not provide a specific provision for the
accumulation of dividends; therefore no dividends or dividends payable have
been recorded as of December 31, 2007. In the event of a liquidation, dissolution
or winding-up of the Company, either voluntary or involuntary, the holders of
the shares of Series A preferred stock then issued and outstanding are entitled
to be paid out of the assets of the Company available for distribution to its
shareholders, before any payment is made to the holders of shares of common
stock or upon any other series of preferred stock of the Company that is junior
to the Series A preferred stock, an amount per share equal to the stated value.

The holders of the Series B preferred
stock are entitled to vote upon all matters upon which holders of the common
stock have the right to vote, and shall be entitled to the number of votes
equal to the largest number of full shares of common stock into which the
shares of preferred stock, pursuant to certain conversion and anti-dilution
rights, could be converted on the appropriate record date.  The holders of the Companys Series B
preferred stock are not entitled to receive any dividends. In the event of a
liquidation, dissolution or winding-up of the Company, either voluntary or
involuntary, the holders of the shares of the Companys Series A preferred
stock and the Series B preferred stock then issued and outstanding are entitled
to be paid out of the assets of the Company available for distribution to its
shareholders on a pari passu basis, before any payment is made to the holders
of shares of common stock or upon any other series of Preferred Stock of the
Company that is junior to the Series A Preferred Stock and the Series B preferred
stock, an amount per share equal to the stated value.

F-21

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE G - STOCK OPTIONS AND WARRANTS

Stock Options

The Board of
Directors of the Company approved the SecureCare Technologies, Inc. 2007 Stock
Option Plan (the 2007 Plan) on August 15, 2007. The Company has reserved
425,000 shares of common stock for issuance under the 2007 Plan. In accordance
with the terms of the 2007 Plan, the exercise price of each option granted may
not be less than the fair market value of common stock at the date of grant,
without prior approval of the Board of Directors. Options are exercisable
according to the terms set out in the option agreement, not to exceed ten
years. At December 31, 2007, under the 2007 Plan, the Company had 411,667
options outstanding, of which 411,667 were exercisable.

The Company
granted 420,834 options under the 2007 Plan on August 15, 2007 at an exercise
price of $0.80 per share. Of the options granted under the 2007 Plan, 410,834
options vested immediately and 833 options vested between August 15, 2007 and
November 15, 2007. On November 15, 2007, 9,167 options were forfeited. The
Company calculates the fair value of each option award on the date of the grant
using the Black-Scholes option-pricing model. The per share weighted-average
fair value of stock options granted under the 2007 Plan during the third
quarter of 2007 was $0.77. Using the Black-Scholes option pricing model, we
used the following weighted-average assumptions to value these options: Risk
free interest rate, 4.61%; expected life, 4 years; expected dividend yield, 0%;
and daily annualized volatility of 211%.

The Board of
Directors of the Company approved the SecureCare Technologies, Inc. 2004 Stock
Option Plan (the 2004 Plan) on December 31, 2004. The Company has reserved
10,000 shares of common stock for issuance under the 2004 Plan. The exercise
price of each option granted may not be less than the fair market value of
common stock at the date of grant, without prior approval of the Board of
Directors. Options are exercisable according to the terms set out in the option
agreement, not to exceed ten years. At December 31, 2007, under the 2004 Plan,
the Company had 1,250 options outstanding, of which 1,250 were exercisable. All
options granted by the Company under its 2004 Plan are restricted stock awards
under rules promulgated by the Securities and Exchange Commission. There were
no new options granted, exercised or cancelled under the 2004 Plan during the years ended December 31,
2007 and December 31, 2006.

For the year
ended December 31, 2007 and 2006, the compensation expense associated with
stock options was $318,878 and $153,704, respectively. The impact on the
Companys results of operations of recording stock-based compensation for the
year ended December 31, 2007 and 2006 was as follows:

|                                                                         |  |                                        |         |                                        |   |         | 
|------------------------------------------------------------------------ |  | -------------------------------------- | ------- | -------------------------------------- | - | ------- | 
|                                                                         |  | Twelve Months Ended
 December 31, 2007 |         | Twelve Months Ended
 December 31, 2006 |  
|                                                                         |  |                                        |         |                                        |  
|Selling, general and administrative                                      |  | $                                      | 318,878 |                                        | $ | 153,704 | 
|                                                                         |  |                                        |         |                                        |   |         | 
|                                                                        
|Impact on net loss to common
 shareholders                               |  | $                                      | 318,878 |                                        | $ | 153,704 | 
|                                                                         |  |                                        |         |                                        |   |         | 
|Impact on net loss per share to
 common shareholders (basic and diluted) |  | $                                      | .3124   |                                        | $ | 1.514   | 
|                                                                         |  |                                        |         |                                        |   |         | 

F-22

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE G - STOCK OPTIONS AND WARRANTS
(Continued)

The following
tables summarize the activity under both stock option plans for the year ended
December 31, 2007:

|                                                  |  |                                        |         |                                   |   |                                                |  |                            |            |  |   |         |  
|------------------------------------------------- |  | -------------------------------------- | ------- | --------------------------------- | - | ---------------------------------------------- |  | -------------------------- | ---------- |  | - | ------- | -
|                                                  |  | 2007 Stock Option Plan                 |        
|                                                  |  |                                        |        
|                                                  |  | Twelve Months Ended
 December 31, 2007 |        
|                                                  |  |                                        |        
|                                                  |  | Shares                                 |         | Weighted
 Average
 Exercise Price |   | Weighted
 Average
 Remaining
 Contractual Term |  | Aggregate
 Intrinsic Value |           
|                                                  |  |                                        |         |                                   |   |                                                |  |                            |           
|Outstanding at January 1, 2007                    |  |                                        |        |                                   | $ |                                               |  |                            |  years    |  | $ |        |  
|Granted                                           |  |                                        | 420,834 |                                   | $ | 0.80                                           |  |                            | 9.58 years |  | $ | 294,584 |  
|Exercised                                         |  |                                        |        |                                   | $ |                                               |  |                            |  years    |  | $ |        |  
|Cancelled                                         |  |                                        |        |                                   | $ |                                               |  |                            |  years    |  | $ |        |  
|Forfeitures                                       |  |                                        | (9,167  | )                                 | $ |                                               |  |                            |  years    |  | $ | (6,417  | )
|                                                  |  |                                        |         |                                   |   |                                                |  |                            |            |  |   |         |  
|Outstanding at December 31, 2007                  |  |                                        | 411,667 |                                   | $ | 0.80                                           |  |                            | 9.58 years |  | $ | 288,167 |  
|                                                  |  |                                        |         |                                   |   |                                                |  |                            |            |  |   |         |  
|Vested and expected to vest at
 December 31, 2007 |  |                                        | 411,667 |                                   | $ | 0.80                                           |  |                            | 9.58 years |  | $ | 288,167 |  
|Options exercisable at December 31,
 2007         |  |                                        | 411,667 |                                   | $ | 0.80                                           |  |                            | 9.58 years |  | $ | 288,167 |  

|                                                  |  |                                        |       |                                   |   |                                                |  |                            |         |  |   |   | 
|------------------------------------------------- |  | -------------------------------------- | ----- | --------------------------------- | - | ---------------------------------------------- |  | -------------------------- | ------- |  | - | - | 
|                                                  |  | 2004 Stock Incentive
 Plan             |      
|                                                  |  |                                        |      
|                                                  |  | Twelve Months Ended
 December 31, 2007 |      
|                                                  |  |                                        |      
|                                                  |  | Shares                                 |       | Weighted
 Average
 Exercise Price |   | Weighted
 Average
 Remaining
 Contractual Term |  | Aggregate
 Intrinsic Value |        
|                                                  |  |                                        |       |                                   |   |                                                |  |                            |        
|Outstanding at January 1, 2007                    |  |                                        | 1,250 |                                   | $ | 200.00                                         |  |                            |  years |  |   |   | 
|Granted                                           |  |                                        |      |                                   |   |                                                |  |                            |         |  |   |   | 
|Exercised                                         |  |                                        |      |                                   |   |                                                |  |                            |         |  |   |   | 
|Cancelled                                         |  |                                        |      |                                   |   |                                                |  |                            |         |  |   |   | 
|                                                  |  |                                        |       |                                   |   |                                                |  |                            |         |  |   |   | 
|Outstanding at December 31, 2007                  |  |                                        | 1,250 |                                   | $ | 200.00                                         |  |                            |  years |  | $ |  | 
|                                                  |  |                                        |       |                                   |   |                                                |  |                            |         |  |   |   | 
|                                                  |  |                                        |       |                                   |   |                                                |  |                            |         |  |   |   | 
|Vested and expected to vest at
 December 31, 2007 |  |                                        | 1,250 |                                   | $ | 200.00                                         |  |                            |  years |  | $ |  | 
|Options exercisable at December 31,
 2007         |  |                                        | 1,250 |                                   | $ | 200.00                                         |  |                            |  years |  | $ |  | 
|                                                  |  |                                        |       |                                   |   |                                                |  |                            |         |  |   |   | 

The aggregate
intrinsic value is calculated as the difference between the exercise price of
the underlying awards and the quoted price of the Companys common stock,
$1.50, at December 31, 2007.

Warrants

For the year
ended December 31, 2007 in conjunction with the issuance of $450,500 in 6%
convertible bridge notes payable, the Company issued 180,200 warrants to
purchase one share of common stock at $5.00 per share. These warrants were
valued at a range of $5.91 to $10.00 per warrant resulting in a total fair
value of $1,514,649. The Company allocated the proceeds received between the
notes payable and the detachable warrants based on the relative fair values at
the date of issuance. Based on the relative fair value calculations, the
Company allocated $344,104 of the $450,500 in proceeds to the detachable
warrants and the remaining $106,396 to the notes payable.

A summary of
changes in the Companys purchase warrants follows:

|                        |  |          |         |                           |   |        |   |   |        | 
|----------------------- |  | -------- | ------- | ------------------------- | - | ------ | - | - | ------ | 
|                        |  | Total    |        
|                        |  |          |        
|                        |  | Warrants |         | Range of
 Exercise Prices |  
|                        |  |          |         |                           |  
|Outstanding at 12/31/05 |  |          | 20,146  |                           | $ | 202.00 | - | $ | 226.00 | 
|Granted                 |  |          | 75,050  |                           |   | 5.00   |   |   |        | 
|Exercised               |  |          |        |                           |   |        |   |   |        | 
|Cancelled               |  |          | (5,460  | )                         |   | 202.00 |   |   |        | 
|                        |  |          |         |                           |   |        |   |   |        | 
|Outstanding at 12/31/06 |  |          | 89,736  |                           |   | 5.00   | - |   | 226.00 | 
|                        |  |          |         |                           |   |        |   |   |        | 
|Granted                 |  |          | 180,200 |                           |   | 5.00   |   |   |        | 
|Exercised               |  |          |        |                           |   |        |   |   |        | 
|Cancelled               |  |          |        |                           |   |        |   |   |        | 
|                        |  |          |         |                           |   |        |   |   |        | 
|Outstanding at 12/31/07 |  |          | 269,936 |                           | $ | 5.00   | - | $ | 226.00 | 
|                        |  |          |         |                           |   |        |   |   |        | 

F-23

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE G - STOCK OPTIONS AND WARRANTS
(Continued)

Summary

The following
table summarizes information about compensatory stock options outstanding at December
31, 2007:

|                          |  |                            |  |                                            |  |                              |        |                     |         |                              |   |        | 
|------------------------- |  | -------------------------- |  | ------------------------------------------ |  | ---------------------------- | ------ | ------------------- | ------- | ---------------------------- | - | ------ | 
|Stock Options Outstanding |  | Stock Options
 Exercisable | 
|                          |  |                            | 
|Range ofExercise Prices   |  | Number
 Outstanding        |  | Weighted Avg.
 Remaining
 Contractual Life |  | Weighted Avg
 Exercise Price |        | Number
 Exercisable |         | Weighted Avg
 Exercise Price |  
|$0.80     -     0.80      |  | 411,667                    |  | 9.58 years                                 |  | $                            | 0.80   |                     | 411,667 |                              | $ | 0.80   | 
|$200.00
 - 200.00         |  | 1,250                      |  | 6.92 years                                 |  | $                            | 200.00 |                     | 1,250   |                              | $ | 200.00 | 

The following
table summarizes information about other non-compensatory stock options outstanding
at December 31, 2007:

|                          |  |                      |  |                                            |  |                              |        |                     |         |                              |   |        | 
|------------------------- |  | -------------------- |  | ------------------------------------------ |  | ---------------------------- | ------ | ------------------- | ------- | ---------------------------- | - | ------ | 
|Warrants Outstanding      |  | Warrants Exercisable | 
|                          |  |                      | 
|Range of
 Exercise Prices |  | Number
 Outstanding  |  | Weighted Avg.
 Remaining
 Contractual Life |  | Weighted Avg
 Exercise Price |        | Number
 Exercisable |         | Weighted Avg
 Exercise Price |  
|$5.0000
 - $100.00        |  | 255,350              |  | 4.11 years                                 |  | $                            | 5.04   |                     | 255,350 |                              | $ | 5.04   | 
|$100.01
 - $200.00        |  | 11,995               |  | 1.49 years                                 |  | $                            | 199.60 |                     | 11,995  |                              | $ | 199.60 | 
|$200.01
 - $400.00        |  | 1,591                |  | 2.17 years                                 |  | $                            | 250.00 |                     | 1,591   |                              | $ | 250.00 | 
|$400.01
 - $700.00        |  | 1,000                |  | 0.49 years                                 |  | $                            | 525.50 |                     | 1,000   |                              | $ | 525.50 | 

The weighted
average grant date fair value of options granted during 2007 was $0.77. Using
the Black-Scholes option pricing model, we used the following weighted-average
assumptions to value these options: Risk free interest rate, 4.61%; expected
life, 4 years; expected dividend yield, 0%; and daily annualized volatility of
211%.

F-24

---



SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE H - RELATED PARTY TRANSACTIONS

At December
31, 2007, the Company had principal amounts of $729,500 in notes payable to the
following related parties, who own 5% or greater of the Companys outstanding
common stock as of December 31, 2007:

| |                                                                                                                                                                                                                                                                                         
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Joseph
 Larter - $213,500. This includes $83,500 owed to the Joseph Trust, of which
 Joseph Larter is a Trustee, $80,000 owed to the Marldene Directors Pension
 Scheme of which Joseph Larter is a Trustee, and $50,000 owed to Marldene
 Limited of which Joseph Larter is a Trustee.
| |                                                                                                                                                                                                                                                                                         
| | David McCall
 - $218,000.                                                                                                                                                                                                                                                               
| |                                                                                                                                                                                                                                                                                         
| | Michael
 Benton - $124,500. This includes $15,000 that is owed directly to Mr. Benton
 and $109,500 that is owed to the Benton Investment
 Company of which Michael Benton is the owner.                                                                                                
| |                                                                                                                                                                                                                                                                                         
| |                                                                                                                                                                                                                                                                                         
| | Kurt Gubler
 - $108,500.                                                                                                                                                                                                                                                                
| |                                                                                                                                                                                                                                                                                         
| | Ian McIntyre
 - $65,000.                                                                                                                                                                                                                                                                

The
indebtedness to related parties was incurred as set forth below.

For the year
ended December 31, 2007, the Company issued $359,000 in 6% notes payable
initially due December 31, 2008 and 143,600 shares of common stock, in accordance
with the terms and conditions of the Financing approved by the Board of
Directors in June of 2007, to related parties as follows:

| |                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | $40,000 in
 6% notes payable, initially due December 31, 2008, and 16,000 shares of
 common stock to SLT and Joe and Betty Larter being the current trustees of
 the Marldene Directors Pension Scheme;
| |                                                                                                                                                                                                         
| | $50,000 in
 6% notes payable, initially due December 31, 2008, and 20,000 shares of
 common stock to Marldene Limited, of which Joseph Larter is a director;                                            
| |                                                                                                                                                                                                         
| | $109,500 in
 6% notes payable, initially due December 31, 2008 and 43,800 shares of common
 stock to the Benton Investment Company, of which Michael Benton is the owner.                               
| |                                                                                                                                                                                                         
| | $109,500 in
 6% notes payable, initially due December 31, 2008 and 43,800 shares of common
 stock to David McCall.                                                                                      
| |                                                                                                                                                                                                         
| | $50,000 in
 6% notes payable, initially due December 31, 2008 and 20,000 shares of common
 stock to Ian McIntyre.                                                                                       

F-25

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SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE H - RELATED PARTY TRANSACTIONS
(Continued)

For the year
ended December 31, 2007, the Company issued notes payable and common stock
purchase warrants in accordance with the terms and conditions of the December,
2006 Financing approved by the Board of Directors, to related parties as
follows:

| |                                                                                                                                                                                                                     
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | $298,000 in
 two year Convertible Notes Payable, 6% Interest, Convertible at $2.50 per
 share with attached 119,200 common stock purchase warrants, of five year
 life, to purchase common stock at $5.00 per share:
| |                                                                                                                                                                                                                     
| | $27,500 in
 convertible notes payable and 11,000 common stock purchase warrants to SLT
 and Joe and Betty Larter being the current trustees of the Marldene
 Directors Pension Scheme;                             
| |                                                                                                                                                                                                                     
| | $83,500 in
 convertible notes payable and 33,400 common stock purchase warrants to The
 Joseph Trust, of which Joseph Larter is a Trustee;                                                                          
| |                                                                                                                                                                                                                     
| | $93,500 in
 convertible notes payable and 37,400 common stock purchase warrants to David
 McCall;                                                                                                                   
| |                                                                                                                                                                                                                     
| | $93,500 in
 convertible notes payable and 37,400 common stock purchase warrants to Kurt
 Gubler.                                                                                                                    

NOTE I - CONCENTRATIONS OF CREDIT RISK

The Company
extends unsecured credit in the normal course of business to virtually all of
its customers. The Companys accounts receivable are subject to potential
credit risk. The Company has provided an allowance for doubtful accounts which
reflects its estimates of uncollectible amounts. The maximum exposure assuming
non-performance by the customers is the amount shown on the balance sheet at
the date of non-performance.

At December
31, 2007 one customer accounted for 52% of accounts receivable. This customer
also accounted for 50% of the Companys revenue for the twelve months ended
December 31, 2007. At December 31, 2006 one customer accounted for 31% of
accounts receivable. This customer also accounted for 23% of the Companys
revenue for the twelve months ended December 31, 2006.

Cash is
maintained in financial institutions which, at times, may exceed Federal
Deposit Insurance Corporation insured amounts. However, the Company mitigates
its risk by assuring that cash is maintained in high quality credit
institutions.

F-26

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SecureCare Technologies, Inc.

NOTES TO FINANCIAL STATEMENTS
For the Years Ended December 31, 2007 and 2006

NOTE J  ACCRUED PAYROLL TAXES

At December
31, 2007, the Company owes $183,055 in accrued payroll taxes and $89,899 in
related penalties and interest, the majority of which is related to taxes owed
from calendar year 2005. These amounts are classified as follows on the
accompanying balance sheet:

|                        |  |         |         |             |   |         |  |   |         | 
|----------------------- |  | ------- | ------- | ----------- | - | ------- |  | - | ------- | 
|                        |  | Current |         | Non-Current |   | Total   | 
|                        |  |         |         |             |   |         | 
|                        |  |         |         |             |   |         |  |   |         | 
|Accrued
 Payroll Taxes  |  | $       | 93,025  |             | $ | 90,030  |  | $ | 183,055 | 
|Penalties
 and Interest |  |         | 32,492  |             |   | 57,407  |  |   | 89,899  | 
|                        |  |         |         |             |   |         |  |   |         | 
|Total                   |  | $       | 125,517 |             | $ | 147,437 |  | $ | 272,954 | 

The Company
received a Notice of Federal Tax Lien by the Internal Revenue Service (IRS)
dated May 24, 2006. The Tax Lien was filed with the Secretary of State in
Texas. The Lien is in favor of the United States on all property and rights to
property belonging to the Company for the amount of these taxes, and additional
penalties, interest, and costs that may accrue. The Lien will remain in place
until such time that the Company pays its obligations in full to the IRS. On
March 1, 2007 the Company commenced an IRS-approved five year monthly payment
plan to pay a majority of the delinquent payroll taxes and related interest and
penalties totaling $178,077 at December 31, 2007. The Company will make monthly
payments of $5,000 over the course of the five year plan.

NOTE K  LOSS ON EARLY EXTINGUISHMENT OF DEBT

In late June
2007, in accordance with the terms and conditions of the Companys original
conversion offer, dated October 19, 2006, to convert the principal amounts of
notes payable and accrued interest to common stock, the Company received signed
consents from additional note holders accepting the conversion offer
representing $200,000 in notes payable and $44,018 in accrued interest. To
affect these additional conversions, the Company issued 107,396 shares of
common stock. The difference between the net carrying amount of the
extinguished debt and the reacquisition price of the extinguished debt,
totaling $381,358 was recognized as a loss in the period of extinguishment.

For the twelve
month period ended December 31, 2006, the Company converted a total of
$1,564,490 in notes payable and $264,806 in related accrued interest to 805,099
shares of Series C Stock (which was subsequently automatically converted to
805,099 shares of common stock on April 25, 2007). The difference between the
net carrying amount of the extinguished debt and the reacquisition price of the
extinguished debt, totaling $19,030,648 was recognized as a loss in the period
of extinguishment.

NOTE L  SUBSEQUENT EVENTS

Subsequent to
December 31, 2007 and through March 25, 2008, the Company received an
additional $330,630 in gross proceeds from the issuance of notes payable,
including $230,630 to related parties. The Company also issued 132,252 shares
of common stock to the participating investors, including 92,252 shares to
related parties.

On March 7,
2008, the Company received a letter from an attorney for an investor demanding
payment on a promissory note issued in 2004 with a principal balance of
$63,500. Another party has advised the Company that it is the legal owner of
the promissory note. No legal action has been commenced and the Company is
attempting to resolve the matter between the parties. The promissory note has
been carried on the Companys books as a liability and management does not
believe that the outcome of this matter will have a material effect on the Companys financial
position, operating results or cash flows. However, there can be no assurance
that any legal proceeding that develops as a result of this matter will not have a material impact.

F-27

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